Beneficiaries Flashcards
Name 6 Beneficiary Designations.
What is the disadvantage to naming an estate as the beneficiary?
What is a class designation?
- Insurance companies do not restrict selection of a beneficiary; insurable interest is not a factor when selecting the beneficiary.
- The policyowner can choose a natural person such as a spouse, a child/ children or a legal entity, such as a corporation, partnership, or trust.
Common Designations
- Individuals—policyowner can name joint beneficiaries or multiple beneficiaries with equal shares or unequal shares
- businesses
- trusts
- estates —main disadvantage is that it places the policy proceeds into the estate hence the proceeds are subject to the claims of creditors and estate taxes.
- charitable organizations
- class designations — “my children” or “my grandchildren” “my grandchildren not yet born”
When Managing Multiple Beneficiaries what 2 factors are most important?
Most applicants name multiple beneficiaries, either to share the death benefit or to make sure there is a “back-up”
- order of beneficiaries and their succession; and
- share of the proceeds each will receive, if more than one beneficiary is named.
- Primary means first in line if alive
- Contingent, or secondary beneficiary is the next person (or class of persons) in line to receive the policy proceeds
- Tertiary beneficiary
What is the difference between a Per Stirpes and a Per Capita beneficiary?
Sometimes a policyowner wants to designate certain beneficiaries but also make arrangements in case one or more of those beneficiaries predecease the insured. This is possible through the use of per stirpes and per capita beneficiary designations:
per stirpes—“by class”
death benefit proceeds are shared equally by the first class or group of individuals and if one of them predeceases the insured, his or her share passes directly down to the group below them. [STRAIGHT LINE/ STRIPE]
per capita—“by total headcount”
proceeds are shared equally by the first class or group of individuals and if one of them predeceases the insured, the remaining shares are shared equally by the group below them.
Define the difference between Revocable and Irrevocable Beneficiaries
A revocable beneficiary (the most common) has no rights in or to the policy during the insured’s lifetime. A revocable beneficiary has only an expectancy that he or she may receive the death benefit.
An irrevocable beneficiary has a vested interest in the policy. The policyowner cannot change the beneficiary and cannot change anything in the policy that affects the rights of the irrevocable beneficiary without first getting the beneficiary’s consent.
What is the problem with naming Minors as Beneficiaries?
What 2 ways is this problem solved?
As a general rule, insurance companies do not pay the proceeds of a life insurance policy to a minor because minors do not have the legal capacity to sign a binding receipt for the funds.
- The insurer normally requires the court to appoint a legal guardian before paying out proceeds to a minor child. (A surviving parent does not automatically qualify.
- recommends the creation a trust for the minor’s benefit and designate the trust as beneficiary. The trust document can stipulate how and when the proceeds are to be made available to the minor.
In what 2 cases does the Facility of Payment Clause take effect?
And what does it allow the insurer to do?
There are two common situations in which the facility of payment clause is applied:
- The beneficiary died before the policyowner and no contingent beneficiary was named.
- The beneficiary is a minor and no adult beneficiary is named.
In these cases, the insurer will look for the nearest blood relative or someone with a valid claim to be the new beneficiary. As a last resort the insurer will pay the proceeds to the insured’s estate, and the probate process will ultimately determine who gets the money.
Common Disaster Provision accounts for what event?
What is the SDM Act and what is the minimum survival period?
The common disaster provision stipulates that if the primary beneficiary does not survive the insured more than a minimum period of time (commonly five days) following a common accident, then proceeds are payable to the contingent beneficiary.
A life insurance policy’s common disaster provision conforms to the Uniform Simultaneous Death Act requires a 120-hour (5 days) survival period.
To understand the importance of the common disaster provision, imagine a scenario in which the insured (husband) and the primary beneficiary (wife) are both killed in a car accident. This is the second marriage for both husband and wife, and both have children from their previous marriages. They have no children in common. The insured’s children from his first marriage are the contingent beneficiaries.
Assume the husband dies instantly, and the wife dies several hours later in the hospital. If the wife were deemed to have survived the husband, even for a moment, then proceeds would be payable to the wife’s estate, and her children might be the ultimate recipients of the policy proceeds. This arrangement would probably violate the insured’s intentions, since he has named his children as the contingent beneficiaries. The common disaster provision solves this dilemma.
If she dies within the 120-hour period, policy proceeds would be paid to the contingent beneficiaries (i.e., the insured’s children).
Spendthrift Clause does what 2 things?
States that
- Stops creditors from making claims on any of the death proceeds before they are paid out to the beneficiary
- Also protects beneficiaries from themselves. Stops the beneficiary from changing the settlement option. Instead, the beneficiary must abide by the settlement option the insured chose.
