Chapter 07: Life Insurance Beneficiaries
Per Capita
"Per person" or "by head"; means that a policy's proceeds are paid only to the beneficiaries who are living and have been named in the policy.
Most Commonly Designated Beneficiaries
1. Individuals 2. Businesses 3. Trusts 4. Estates 5. Charities 6. Minors 7. Classes (group designations like "children of the insured")
Beneficiary Designations
1. Order of Succession- primarily, secondary, tertiary 2. By the number named within each order 3. By descent- per stirpes or per capita
Beneficiary Designation Options
1. Primary- those first entitled to the proceeds 2. Secondary- those entitled to proceeds if no primary beneficiary is living when the insured dies 3. Tertiary- those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies
Revocable Beneficiary
A beneficiary whose rights in a policy are subject to the policyowner's reservedright to revoke or change the beneficiary designation and the right to surrender or make a loan on the policy without the beneficiary's consent.
Irrevocable Beneficiary
Beneficiary whose interest cannot be revoked without the beneficiary's written consent, usually because the policyowner has made the beneficiary designation without retaining the right to revoke or change it.
Spendthrift Provision
Commonly used clause in life insurance that stipulates, to the extent permitted by law, policy proceeds shall not be subject to the claims of the creditors of the beneficiary or the policyowner.
Uniform Simultaneous Death Act
Law enacted in many states that states that when an insured and beneficiary die at the same time it is presumed that the insured survived the beneficiary, which allows the company to pay a secondary or contingent beheficiary.
Per stirpes
Means "by way" or "by branches"; means that a beneficiary's share of a policy's proceeds will be passed down to the beneficiary's living child or children in equal shares should the named beneficiary predecease the insured.
Recording Method
Most common method in use for changing beneficiaries; the policyowner notifies the insurance company IN WRITING of the change. The change will take place as of the day the request is signed, even if the insured is not living on the day the request is received.
Insurable Interest
Requirement of insurance contracts that loss must be sustained by the applicant upon the death or disability of another and loss must be sufficient to warrant compensation
Common Disaster Provision
Sometimes added to a policy and designed to provide an alternate beneficiary in the event that the insured as well as the original beneficiary die as the result of a common accident (the beneficiary must outlive the insured by a period stipulated by the policyowner, 14 or 30 days are typical, or it is still assumed that the insured died last).
Absolute Irrevocable Clauses
The beneficiary has an absolute vested interest in the life insurance contract even if the beneficiary predeceases the policyowner.
Reversionary Irrevocable Clauses
The right to modify the beneficiary clause as well as all other rights of ownership revert to the policyowner if and when the beneficiary predeceases the policyowner.
Facility-of-Payment Provision
There are a few, limited situations where an insurer must pay proceeds to someone not designated as a beneficiary including: 1. Beneficiary is a minor 2. Beneficiary is deceased 3. No claim is submitted within a specified period of time 4. Costs were incurred by another party for the deceased insured's final medical or funeral expenses
Distribution by Descent
When life insurance policy proceeds are to be distributed to a person's descendants, a per stirpes or a per capita approach is generally used.