Chapter 7

What situation would apply to Facility of Payment provision? * * *

* Named beneficiary is minor * Named beneficiary is dead * No claim submitted to insurance company within specified period of time

If a minor is named beneficiary, the insurance company, instead of paying the minor, may * make limited payments to _____ * hold the money until _____, but pay them interest * place the proceeds in a _____

* guardian * the minor reaches majority age * trust

The following can all be named as beneficiaries : 1.) 2.) 3.) 4.) 5.) 6.) 7.)

1.) Individuals 2.) Businesses 3.) Trusts 4.) Estates 5.) Charities 6.) Minors 7.) Classes of beneficiaries

3 types of beneficiary 1.) 2.) 3.)

1.) Primary beneficiary 2.) Secondary beneficiary 3.) Tertiary beneficiary

When is Uniform Simultaneous Death Act added to policy?

Always in policy, automatically

_____ - person to whom the proceeds of a life or accident policy are payable upon the death of the insured

Beneficiary

"_____" - a beneficiary designation rather than specifying beneficiaries by name, the policy owner designates a 'class' or group of beneficiaries. Ex "my children" or "all children born of the insured and said wife"

Class of beneficiary

_____ - requires that the beneficiary outlive the insured by a certain number of days in order for that beneficiary to receive the benefit

Common Disaster Provision

_____ contains 2 parts : 1.) if the insured and primary beneficiary die in the same accident, the policy will pay as if the insured died last (Uniform Simultaneous Death Act) 2.) the primary beneficiary must survive the insured for a certain period of time. If they survive the time frame it is as if they have survived and death benefit goes to them. If they die, then its as if he/she dies first

Common Disaster Provision

_____ - tax on giving away your assets after death. aka _____ tax or _____ tax

Death tax Estate tax Transfer tax

_____ - quantity of wealth or property at an individual's death, including life insurance

Estate

_____ provision applies to very limited situations in which an insurance company must pay proceed to someone not designated as beneficiary. Face amounts usually pretty small.

Facility of Payment

Which provision would allow insurance company to pay benefit to third party, such as funeral home, that is not a named beneficiary?

Facility of Payment provision

What is recording method?

Filling out a change of beneficiary form and dating it

What is primary drawback to leaving your life insurance proceeds to an estate?

Increases the size of the estate for estate tax purposes

What type of policy is typically involved in Facility of Payment provision?

Industrial

Life insurance proceeds are free from _____ creditors, however, when check is paid out to beneficiary, can their creditors go after it

Insured's Yes

_____ beneficiary - beneficiary whose interest cannot be revoked without the beneficiary's written consent, usually because the policy owner has made the beneficiary designation without retaining the right to revoke or change it.

Irrevocable

_____ beneficiary arrangement reduces policyowner's rights so that policyowner cannot borrow from the policy, assign ownership, or surrender it without the written consent beneficiary

Irrevocable

Do life insurance policies go through probate?

No

Is your life insurance policy subject to your creditors?

No, it is protected from creditors, including cash value amount

_____ Rule - Death proceeds from an insurance policy are divided equally amoung the living primary beneficiaries

Per Capita

Benefits follow Per Stirpes or Per Capita rule by default?

Per Stirpes

If policyowner does not specify beneficiaries be 'per capita', proceeds will automatically pass by blood ( _____ ) to descendants in the event of the beneficiary's death

Per Stirpes

_____ Rule - Death proceeds from an insurance policy are divided equally among the named beneficiaries. If a named beneficary is deceased, his or her share goes to the living descendants of that individual

Per Stirpes

_____ Rule only applies when you have multiple beneficiaries on the same level and one of them is dead

Per Stirpes

_____ Rule - passes by blood _____ Rule - means named

Per Stirpes Per Capita

_____ beneficiary - designated by insured as first to receive benefits. More than one person can be named

Primary

What happens to death benefit if no beneficiary is named or no beneficiary is found?

Proceeds will go into estate of deceased, then probate

_____ beneficiary - beneficiary whose rights in a policy are subject to policyowners reserved right to revoke or change the beneficiary designation and the right to surrender or make a loan on the policy without the beneficiary's consent

Revocable

_____ beneficiary - an alternative beneficiary designated to receive payment, usually in the event of original beneficiary predeceasing insured. (aka _____ beneficiary)

Secondary Contingent

_____ - protects the beneficiary against his.her own creditors; does not apply to proceeds paid in a lump sum; states that distributions paid in installments may not be assigned, transferred or attached in any way

Spendthrift trust clause

_____ beneficiary - beneficiary third in line to receive proceeds (aka _____ beneficiary)

Tertiary Contingent

Who is the third party applicant?

The person buying the policy

What happens if in per capita agreement with Tom, Tim, and Tic as beneficiaries. Tom dies. Where does his share go? What if they all die?

To Tim and Tic To insured's estate

_____ - is like a bucket you put assets into

Trust

_____ - administers the terms of a trust

Trustee

_____ - states that when the insured & primary beneficiary die as a result of the same accident and they cannot determine who died first, the proceeds are paid as if the insured died last

Uniform Simultaneous Death Act

_____ - when the insured and the primary beneficiary are killed as a result of the same accident and it cannot be determined who died first, the proceeds will be paid as if the insured died last

Uniform Simultaneous Death Act

What is typical period beneficiary must survive according to Common Disaster Provision to be receive benefit?

Usually 14 or 30 days

Can more than one beneficiary be named per category?

Yes

Can you leave your life insurance proceeds to a charity?

Yes

Can you name a minor as beneficiary?

Yes

All of the following statements about facility-of-payment provisions are correct EXCEPT a.) they are often found in group life policies b.) they permit an insurer to pay all or part of the proceeds to a party who is not named in the contract c.) they are typically found in industrial policies d.) they permit insurance proceeds to be paid to someone not named in the policy when the named beneficiary is a minor

a.)

Mary names her husband, Rick, as primary beneficiary of her life insurance policy and her two children, Pam and Matt, as contingent beneficiaries. Rick dies in March. Pam and Matt are killed simultaneously in a car accident later that month. Hearing the news, Mary has a fatal heart attack. In this case, Mary's life insurance proceeds will be paid a) to Mary's estate. b) to Rick's estate. c) in equal shares to Rick, Pam, and Matt's estates. d) one-half to Rick's estate and one-quarter each to Pam and Matt's estates.

a.)

The method used today to change beneficiaries is known as a.) recording method b.) beneficiary alteration method c.) assignment method d.) change of designation method

a.)

Remember, insurable interest must exist between the _____ and the _____ at inception

applicant person being insured

All of the following statements about beneficiary designations are correct EXCEPT a.) when a charity is named beneficiary; the policy owner's heirs cannot contest the gift b.) minors cannot be named life insurance beneficiaries c.) a business may be designated as a beneficiary d.) when a trust is named beneficiary; a trustee will manage the insurance proceeds

b.)

Kevin, the insured under a $200,000 life insurance policy, and his sole beneficiary, Linda, are killed instantly in a car accident. Under the Simultaneous Death Act, to whose estate will the policy proceeds be paid a.) Linda's estate b.) Kevin's estate c.) both Kevin and Linda's estate, equally d.) the proceeds will escheat to the state

b.)

The beneficiary on Walter's life insurance reads, "Children of the insured." Which of the following phrases best describes this type of beneficiary designation a.) Juvenile beneficiaries b.) Class beneficiaries c.) Generational beneficiaries d.) Primary beneficaries

b.)

A clause that states that policy distributions payable to the beneficiary after the insured dies are not assignable or transferable and may not be attached in any way is called a a.) facility-of-payment clause b.) debtor's protection clause c.) spendthrift trust clause d.) assignment clause

c.)

If an irrevocable beneficiary dies before the policy owner, who of the following gains control of a life insurance policy with a reversionary irrevocable clause a.) insured b.) irrevocable beneficiary's children c.) policy owner d.) insurer

c.)

Mr Williams names his son John a beneficiary of his life insurance policy. What designation should he use if he wants to make sure that John's children would receive John's share of the life insurance policy proceeds should John predecease his father a.) Per capita b.) Class beneficiary c.) Per Stirpes d.) grandchildren

c.)

When a policy owner cannot exercise his rights of ownership without the policy beneficiary's consent, the beneficiary is designated a.) vested b.) contactual c.) irrevocable d.) primary

c.)

Which of the following statements is CORRECT a.) a Per Capita distribution is the most common method of distributing proceeds to beneficiaries b.) if the policy owner designates a Per Stirpes distribution of the proceeds, the designation becomes irrevocable once a beneficiary predeceases the policy owner c.) a Per Stirpes distribution means that a beneficiary's share of a policy's proceeds will be passed down to his or her living child or children is the named beneficiary predeceases the insured d.) a Per Capita distribution ensures that an insured's surviving family will share in the insurance proceeds

c.)

The only thing the policyowner can do without the irrevocable beneficiary's permission/signature is _____

change the premium mode

All of the following statements concerning a common disaster provision are correct EXCEPT a.) the provision activates when the insured and primary beneficiary die as a result of the same accident b.) the provision stipulates that if the insured and the primary beneficiary die in the same accident, it is presumed that the insured died last c.) the provision gives a policy owner assurance that proceeds will be distributed according to his or her wishes d.) the provision stipulates that if the primary beneficiary outlives the insured by more than 48 hours, then the proceeds will be paid to the primary beneficiary's estate

d.)

Christine's policy has a clause that reads as follows, "should the primary beneficiary and the insured die in the same accident and the primary beneficiary fails to survive the insured by 14 days, it will be assumed that the beneficiay predeceased the insured." Which of the following phrases best describes this clause? a.) secondary beneficiary provision b.) facility-of-payment provision c.) uniform simultaneous death act d.) common disaster provision

d.)

Sandra has a life insurance policy that states that her husband, Gerald, is to receive the full death benefit. If he predeceases her, their three children are to share the benefit equally. If her husband and all three children predeceases her, the benefit is payable to the First Community Church. All of the following statements are correct EXCEPT a.) Gerald is the primary beneficiary b.) the three children are all secondary beneficiaries c.) the First Community Church is a tertiary beneficiary d.) the designation of the First Community Church can be contested be any of Sandra's relatives who survives her children

d.)

What is the beneficiary designation that can only be changed with the beneficiary's written agreement a.) revocable beneficiary b.) wife of the insured c.) Per Stirpes d.) irrevocable beneficiary

d.)

With an irrevocable beneficiary named, a policy owner may do which of the following without the beneficiary's permission a.) take a loan b.) increase the amount of insurance c.) reduce the amount of insurance d.) change the premium mode

d.)

When you die, we add up value of all your stuff, including any life insurance you own. If it exceeds a certain amount, everything over that amount will be subjected to _____

estate tax

Without reversionary cause, _____ beneficiary has to power to name whoever they want to get death benefit if they die before the insured

irrevocable

The decision to name a beneficiary rests with the _____

policyowner

Estates go through the _____ process, proving who gets what, can be a long and expensive process

probate

If a person has left behind several wills, what process will prove which one is valid?

probate

Policyowner must have a _____ clause to retain the right to rename beneficiary if irrevocable beneficiary dies

reversionary

True or False An individual, business, or trust can be named beneficiaries

true