Life Policy Provisions and Options

Question 1

Types of Beneficiaries

Answer 1

Revocable – The policyowner may change a revocable beneficiary at any time.

Irrevocable – The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change.

Question 2

Beneficiary Succession

Answer 2

Primary beneficiary – The primary beneficiary is the first in line to receive the death benefit upon the death of the insured.

Contingent or secondary beneficiary – The contingent beneficiary receives the death benefit only if there is no primary beneficiary alive following the death of the insured.

Tertiary beneficiary – The tertiary beneficiary receives policy proceeds if both the primary and the contingent beneficiaries predecease the insured.

If there is no surviving named beneficiary at the time of the insured’s death, the proceeds are payable to the policyowner, if living, or to the insured’s estate.

Question 3

Beneficiary Designations

Answer 3

A beneficiary designation is selected at the time of application. A change of beneficiary will take effect on the date the request was signed by the owner, whether or not the insured is alive at the time the insurer actually receives the notice.

Question 4

Individual/Named

Answer 4

This designation is very specific. An individual is specified by name as the beneficiary, such as Mary Doe (wife) or John Doe (husband). This prevents probate proceedings.

Question 5

Class or classification

Answer 5

This designation is used in instances where each beneficiary is not directly identified by name. The wording of the class designation must be specific and carefully worded to remove any doubt of the owner’s/insured’s intentions. For example, “any children of this marriage”, or “the insured’s spouse” may be classified as beneficiaries

Question 6

Per capita

Answer 6

This is a designation that will pay surviving beneficiaries equally if a named beneficiary predeceases the insured.

Question 7

Per stirpes

Answer 7

This is a designation that will pay a deceased beneficiary’s share to the heirs of the beneficiary who predecease the insured.

Question 8

Estate

Answer 8

The estate may be the tertiary beneficiary in case the insured outlives all other beneficiaries. By default, if the insured outlives all other beneficiaries, benefits are paid to the insured’s estate

Question 9

Trust

Answer 9

When a recipient does not have direct access to the death benefits, such as in the case of minor children, and the proceeds are to be distributed as per the insured’s directions set forth in a trust.

Question 10

Minors

Answer 10

If minors are named as beneficiaries, but no trust has been established, the funds are placed in a settlement option (held with interest), with the insurer acting as trustee.

Question 11

Creditor

Answer 11

Designated by assignment, or named at application, to cover indebtedness. The creditor may either be the named beneficiary or can be the assignee under a collateral assignment.

Question 12

Common Disaster Clause

Answer 12

The Common Disaster Clause provides that if an insured and primary beneficiary are in the same accident, the primary beneficiary must survive the insured by a specific number of days (usually 90) or the insurance company will assume the insured died last (the primary beneficiary died first).

The Uniform Simultaneous Death Act has been adopted by all states and provides that when the insured and primary beneficiary die as the result of the same event and the order of death cannot be determined, it is assumed the insured died last, protecting their secondary beneficiary or heirs.

Question 13

Spendthrift Trust Clause

Answer 13

The Spendthrift Clause denies the beneficiary the right to assign their interest in the policy proceeds. The purpose is to prevent creditors of a beneficiary from claiming any benefits payable to the beneficiary before they are actually received. This clause does not protect the beneficiary if the benefits are payable in a lump sum, only when the proceeds are held by the insurance company under a settlement option.

Question 14

Change of Insured

Answer 14

This is typically a rider found in corporate-owned life insurance when an executive moves to another company or retires.

Question 15

Facility of Payment Clause

Answer 15

This provision allows the insurer to pay a relative or anyone it deems entitled to the benefits in the absence of a properly designated beneficiary or in cases of no living beneficiaries.

This can alleviate any lawsuits and can be used to reimburse someone who may have paid expenses on the insured’s behalf, such as funeral costs.