Beneficiaries

Tertiary Beneficiary

Naming beneficiaries by succession. If both the primary and contingent beneficiaries predecease the insured, then the tertiary beneficiary will receive the policy proceeds.

Primary Beneficiary

Naming beneficiaries by succession. The first person to receive policy proceeds upon the insured's death.

When naming a policy beneficiary, the policyowner has several designation options to choose from, such as:

-Individuals -Businesses -Estates -Minors -Trusts -Charities -Classes of individuals

Trusts

A trust can be named as the beneficiary. In this scenario, the policyowner gives the legal title of the insurance policy to another person, the trustee, for the benefit of the trust beneficiary. Legally, the trustee cannot benefit from the trust, but is paid to manage the property on behalf of the trust beneficiary.

Insurable Interest

An individual's valid concern for the continuation of the life or well-being of the person insured, which must be present at the time of application.

Succession Example

Bill could name Jason and Judy as primary beneficiaries and Mary and Blain as contingent beneficiaries. In this case, Bill would need to specify how the policy proceeds would be divided (i.e., Jason ¼; Judy ¾).

Changes

The policyowner can change beneficiaries at any time without their consent as long as they are named as revocable. The policyowner must receive the irrevocable beneficiary's written consent to change a beneficiary.

Per Stirpes

defined as "by the root". Under this class designation, deceased beneficiaries would have their portion of the policy proceeds distributed to their children. This means that the insured's grandchildren are eligible to receive policy proceeds if the insured's child predeceases the insured.

The insured's ______ becomes the beneficiary if all named beneficiaries predecease the insured.

estate

Trusts Advantages

secure way to establish a scholarship fund, give money to an institution, or to assure that policy proceeds are disbursed exactly as the policyowner intends

Trusts Disadvantages

the high costs of administering a trust and the trust beneficiary's inability to intercede if the trustee is not managing the trust correctly.

Revocable Beneficiary

Beneficiary designation that can be changed without the beneficiary's consent. -the owner of a life insurance policy also has the power to make a policy loan or surrender the policy for its cash value, without the beneficiary's consent. However, the policyowner may not increase the amount of the insurance without the beneficiary's consent.

Succession

Naming beneficiaries in succession allows the policyowner to name up to three levels of prioritized beneficiaries: -Primary -Secondary -Tertiary Secondary and tertiary beneficiaries are called contingent because they only receive policy proceeds if the primary beneficiary predeceases the insured.

Disadvantages of Listing Estate as a Beneficiary

Policy proceeds must go through probate court because they are considered part of the insured's gross estate for tax purposes. This can be costly, time-consuming and subject the policy proceeds to creditors.

Advantages of Listing Estate as a Beneficiary

Provide liquid capital to pay for estate taxes, the insured's final expenses and the insured's outstanding debts.

Reversionary

With reversionary, if an irrevocable beneficiary predeceases the insured, the policyowner no longer requires that beneficiary's written consent to exercise policy ownership rights.

Spendthrift Clause

Prevents creditors from seizing life insurance policy proceeds provided there is at least one named beneficiary, excluding the insured's estate. Only protects policy proceeds paid in installments over a period of time - funds held by the insurance company to be paid to the beneficiary at some point in the future. It does not prohibit creditors from reaching benefits received in a lump sum payment.

Per Capita

"By the head" class designation for beneficiaries. Only the living heirs receive a portion of the policy proceeds.

Examples of class designations are:

-"All my children" -"All of my living siblings" -"All living and active players of the Wildcats team."

The policyowner may request a change to the named beneficiary either:

-By filing (contacting the insurer via phone or in writing and requesting the change - the recording method), or -By an endorsement (changing the policy itself to indicate the change in beneficiary).

Irrevocable Beneficiary

A beneficiary who essentially becomes co-owner of a life insurance policy. The policyowner must receive the irrevocable beneficiary's written consent for any change made to the policy.

Businesses

A business can be named as the beneficiary of a life insurance policy.

Charities

A charity may be named beneficiary of a life insurance policy.

Minors

A minor can be named as a beneficiary, but because a minor cannot legally receive policy proceeds, a guardian or trustee must be appointed who can legally receive the policy proceeds and manage them until the minor reaches the legal age. A trust can be established if a guardian cannot be relied upon to manage the funds. In most cases, minors should not be named as beneficiaries.

Ownership

A required provision in a life insurance policy which stipulates the rights of the policyowner.

Class Designation

Classes of individuals may be named as beneficiaries. Naming a class of beneficiaries allows the policyowner to name a group of individuals generally, without naming each individual member of the group.

Classes

Classes of individuals may be named as beneficiaries. Naming a class of beneficiaries allows the policyowner to name a group of individuals generally, without naming each individual member of the group. This saves the policyowner the hassle of changing beneficiaries when births and deaths occur.

Absolute

For absolute, the beneficiary has a vested interest in the policy, even if he/she predeceases the policyowner.

Individuals

One or more individuals may be named as beneficiaries. If more than one person is named, then the policy proceeds are divided as indicated in the policy.

Per Stripes Example

Suppose Bill names his four children as per stirpes beneficiaries instead. Now, if Jason and Peter are predeceased upon Bill's death, then the policy proceeds would be divided as follows: Jason's two children would each receive 1/6 of the policy proceeds accounting for a total of 1/3, Judy receives 1/3, and Mary receives 1/3.

Estates

The insured's estate may be named as beneficiary. This designation is used in cases where: -There are no living beneficiaries, -The policyowner did not name any beneficiaries, or -The beneficiary is found guilty of murdering the insured.

Beneficiaries

The named individuals or entities designated by the policyowner to receive the policy proceeds. -The policyowner may name any person or legal entity as beneficiary. -More than one beneficiary may be named. -An estate, trust, charitable organization, institution or other legal entity may be named as a beneficiary. -The policyowner is not required to name a beneficiary. -The beneficiary does not need to have an insurable interest in the life of the insured.

Per Capita Example

Bill names his four children - Jason, Judy, Mary and Peter - as per capita beneficiaries. Jason has two children of his own. Judy, Mary and Peter are single and do not have any children. If Jason and Peter were predeceased upon Bill's death, then Judy and Mary each would receive ½ of the policy proceeds. The per capita stipulation would not allow Jason's beneficiary designation to be passed on to his children.

A life insurance policy is a contract between the insurer and the policyowner. After the insured has died, the contractual arrangement is between the insurer and the beneficiary. What responsibilities does the insurer have to the insured's creditors?

None. The insured's creditors have no right to the proceeds of the policy. The creditors of the beneficiary, however, could have rights to the proceeds.

Which beneficiary designation is most appropriate for a person who wants to name his spouse as a beneficiary of his life insurance policy, and simultaneously retain full policy ownership rights?

By naming a beneficiary as irrevocable, that person effectively becomes a co-owner of the policy. In this case, that is not what the policyowner needs. The policyowner should name his spouse as a revocable beneficiary. Revocable beneficiary

Common Disaster Clause

Clause protects the contingent beneficiaries' rights by stipulating a certain number of days the primary beneficiary must outlive the insured after a common accident causing near-simultaneous death in order for the primary beneficiary to receive the policy proceeds.

Uniform Simultaneous Death Act

If the insured and the primary beneficiary are killed at the same time due to a common accident and there is no conclusive evidence as to who died first, the policy proceeds will be paid as if the primary beneficiary died first, in which case the policy proceeds are paid to the contingent beneficiaries or to the insured's estate.

Minors Continued

Insurance companies may make restricted life payments to an adult guardian on behalf of the minor beneficiary. The insurer may also keep the policy proceeds to accrue interest until they may be paid to the minor when he or she reaches the age of majority or when an adult guardian has been appointed. Finally, the insurer may put the policy proceeds in a trust on behalf of the minor.

Irrevocable beneficiaries are either

absolute or reversionary

Facility-of-payment Provision

allows the insurer to choose a beneficiary if the insurer cannot get in contact with the named beneficiaries after a certain amount of time. Usually this provision is used in policies with face amounts of $1,000 or less (group life policies and industrial policies). The insurer typically chooses a blood relative of the Insured. Even though the person chosen is not a named beneficiary in the policy, that person has a valid right to the policy proceeds. Used when the named beneficiary is a minor, the named beneficiary has predeceased the insured, a claim has not been submitted, or it is known to the insurer that another party has paid the deceased insured's final expenses and burial costs.

Short Term Survivorship

requires that the insured and primary beneficiary's deaths be from unrelated causes. If the primary beneficiary dies before the insured, then the policy proceeds are paid to the contingent beneficiaries, or if none, to the insured's estate. If the insured dies before the primary beneficiary, then the policy proceeds are paid to the primary beneficiary only if the primary beneficiary outlives the insured by a specified number of days. The stipulated period is usually 15 or 30 days.

Beneficiary Designations

the ways beneficiaries are classified. This establishes how beneficiaries receive policy proceeds, such as in what order, and how benefits are paid when one beneficiary predeceases another beneficiary.