Beneficiaries and settlement options

Individuals

Each beneficiary is named share equally unless stated otherwise

Beneficiary Defined

The beneficiary is the person, other than the insured, to whom payment of the life insurance proceeds will be paid upon the death of the insured.

Creditor

cover indebtedness.

Tertiary

the party that receives the proceeds if there is no living primary or contingent beneficiaries

Contingent (Secondary)

the party with the rights to receive the proceeds upon death of the insured providing the primary beneficiary predeceases the insured. Contingent beneficiary is entitled to the proceeds only if no primary Beneficiary is living

Primary -

the person or persons with the right to receive the proceeds upon the death of the insured. May be more than one primary. Proceeds will be split equally unless the owner specifies otherwise

If policyowner is other than insured and no beneficiary

will be paid to the policyowner.

Class

used when beneficiary is not directly identified by name but are identified by grouping, such as children or brothers and sisters. It would include both natural born and adopted children. In addition to the class designation, the per capita and per stirpes designations are used to benefit children.

Business entities Trusts

used when beneficiary is not to have direct access to the funds Disadvantages: Trustee charges a management fee Beneficiary is powerless to intervene if poorly managed Trustee may not provide resources for the beneficiary or grantor would have wanted

Uniform Simultaneous Death Act and Common Disaster Clause

used when insured and beneficiary died at the same time. It sets up sequence of payment when it cannot be determined who died first. It assumes the beneficiary died first. Common Disaster Provision/Clause places a time element on the survival period of the primary beneficiary by stipulating that the primary beneficiary must survive the insured by a specified period of time such as 30, 60, or 90 days otherwise the policy assumes the beneficiary died first

C. Fixed Period

Also known as period certain. Pays a specified amount for a specified period of time

A. Interest

Also known as the temporary option. Proceeds held by insurer and interest earned is sent to the recipient at least annually. Guarantees a minimum interest earning. Principal never decreases however it can be withdrawn

Irrevocable

Beneficiary has a vested interest. Once named, beneficiary cannot be changed even by the policyowner. Policyowner cannot make changes in the policy, surrender the policy, nor take policy loans without irrevocable beneficiary's consent. Beneficiary has a vested interest in the cash and death benefit.

Charity

Can name the Estate of the Insured as beneficiary. If there is no living beneficiary then proceeds would be paid to Insured's estate Not a good choice. Proceeds would have to be probated

Estate

Can name the Estate of the Insured as beneficiary. If there is no living beneficiary then proceeds would be paid to Insured's estate Not a good choice. Proceeds would have to be probated.

E. Life Income Period Certain

Guarantees a minimum number of years or lifetime whichever is longer

D. Life Income

Guarantees payment for the lifetime of the recipient however no minimum guarantee payment

F. Life Income Joint and Survivor

Guarantees payment throughout lifetime of two or more recipients however all payments stop when the last person dies

G. Joint Life

Guarantees payment throughout the lifetime of two or more recipients however all payments cease when the first person dies

B. Fixed Amount

Pays a specified amount consisting of both principal and interest until the money is exhausted.

Revocable

Policyowner can change at anytime. Beneficiary does not have a vested interest

Settlement options facts to remember

Policyowner may choose at time of application and may change if no proceeds have been paid. Beneficiary can choose if one was not chosen C but cannot change Insurer never chooses Lump sum cash is the automatic settlement option. Lump sum cash passes tax exempt Principal is the entire death benefit at the time of death and is tax exempt. Interest earned and paid on the proceeds is taxable. Settlement options consist of both principal and interest.

Spendthrift Clause

Prevents the creditors of the beneficiary from attached the policy proceeds held by an insurance company. It protects the beneficiary from commuting, alienating, or assigning benefits

Succession

The terms primary, contingent, tertiary have to do with the order or claim to the proceeds.

Minors

Though a minor can be named an insurer will not pay proceeds to a minor. Will pay the proceeds once they turn 18

Per capita

means by head. Used when children are to share equally

Per stirpes

means by stock or blood line. Under per stirpes each child, grandchild, or great grandchild moves up in a representative place of a deceased beneficiary. It allows heirs of the beneficiary to receive their benefit.

If policyowner is the insured and no beneficiary

proceeds are paid to the estate of the insured.