6.2 Beneficiaries: Designations, Per Stirpes/Capita, Common Disaster

Beneficiary Designations

The beneficiary is the person or entity entitled to receive the policy's death benefit. Choosing and classifying beneficiaries is a core tested topic because the rules determine who gets paid, in what order, and what happens when a beneficiary dies before the insured. Death benefits paid to a named beneficiary generally avoid probate and pass outside the insured's estate.

The policyowner has the right to name and (usually) change beneficiaries. A designation must be clear enough to identify the recipient — exam questions punish vague designations like 'my children' when class membership is disputed.

Classes of Beneficiaries

Beneficiaries are arranged in classes that establish payment priority:

If no named beneficiary survives, proceeds are paid to the policyowner's estate, where they become subject to probate and creditor claims. The trap answer pays a contingent beneficiary while a primary beneficiary is still alive — contingents collect only when all primaries are gone.

Revocable vs. Irrevocable

A revocable beneficiary can be changed by the policyowner at any time without the beneficiary's consent — this is the default. An irrevocable beneficiary cannot be changed, and policy rights such as taking a loan, surrendering, or assigning the policy require that beneficiary's written consent.

• Revocable: owner controls everything; beneficiary has a mere expectancy.
• Irrevocable: beneficiary has a vested interest; owner's rights are restricted.

Exam trap: an owner with an irrevocable beneficiary cannot unilaterally surrender the policy for cash.

Per Stirpes vs. Per Capita

When a beneficiary in a class dies before the insured, the method of distribution decides whether that share passes to the deceased beneficiary's descendants or is shared among the survivors.

• Per stirpes ('by the branch'): a deceased beneficiary's share flows down to their children. The family branch keeps its portion.
• Per capita ('by the head'): proceeds are split equally only among the surviving named beneficiaries; a deceased beneficiary's share is redistributed to the survivors, not to that beneficiary's children.

Worked example: An insured names three children to share equally. One child predeceases the insured but left two grandchildren.

Memorize: stirpes keeps it in the bloodline branch; capita keeps it among the living heads.

Common Disaster and the Uniform Simultaneous Death Act

A common disaster occurs when the insured and the primary beneficiary die in the same event (such as a car accident) and the order of death is uncertain. Two tools address this:

• The Uniform Simultaneous Death Act presumes the insured survived the beneficiary when order is unknown. The effect is that proceeds pass as if the beneficiary died first, sending them to the contingent beneficiary rather than into the deceased beneficiary's estate.
• A common disaster clause (also called a survivorship clause) requires the beneficiary to survive the insured by a stated period — commonly 30, 60, or 90 days — to collect. If the beneficiary dies within that window, proceeds go to the contingent beneficiary.

This protects the insured's intent and avoids the death benefit being taxed in, and distributed through, the beneficiary's estate before reaching the intended backup.

Special Designations

A minor generally cannot receive proceeds directly; absent a trust or a Uniform Transfers to Minors Act custodian, a court must appoint a guardian, which delays payment. Naming a trust or using a settlement option can avoid that delay. Naming the estate as beneficiary exposes proceeds to probate and creditors and may increase estate taxes — usually a planning mistake the exam flags as the wrong choice.

Primary, Contingent, and Tertiary Order of Payment

Beneficiaries are paid in a strict priority sequence, and only those living at the insured's death collect.

If no named beneficiary survives, proceeds are paid to the insured's estate, where they become subject to probate and the insured's creditors - an outcome a properly maintained beneficiary designation avoids.

Estate as Beneficiary - Two Drawbacks

• Proceeds pass through probate (delay, cost, public record).
• Proceeds become reachable by the estate's creditors, unlike proceeds paid directly to a named living person.

Exam trap: A contingent beneficiary collects ONLY if every primary beneficiary is dead at the insured's death. If even one primary survives, the contingent receives nothing.

Distribution Methods and Special Designations

Per Stirpes vs. Per Capita

These decide how a deceased beneficiary's share flows to descendants.

Worked example: A policy splits 50/50 between two children, per stirpes. One child predeceases the insured, leaving two grandchildren. The deceased child's 50 percent splits between the two grandchildren (25 percent each), and the surviving child still gets 50 percent. Under per capita, the surviving child would instead take the full amount split among living named beneficiaries.

Special Designations

• Class designation - 'my children' as a group, useful when membership may change.
• Minor as beneficiary - proceeds usually require a guardian or trust because insurers will not pay a minor directly.
• Irrevocable beneficiary - cannot be changed, and the owner cannot take a loan, surrender, or change the beneficiary without that beneficiary's written consent.