6.2 Beneficiaries: Designations, Per Stirpes/Capita, Common Disaster
Key Takeaways
- Primary beneficiaries are paid first; contingent and tertiary beneficiaries inherit only if higher classes do not survive, and proceeds default to the estate if none do.
- Revocable beneficiaries can be changed freely; an irrevocable beneficiary must consent in writing to loans, surrender, or any change.
- Per stirpes passes a deceased beneficiary's share down to that person's children; per capita divides only among surviving named beneficiaries.
- The common disaster clause and Uniform Simultaneous Death Act treat the insured as surviving the beneficiary, directing proceeds to the contingent beneficiary.
- Spendthrift clauses shield installment proceeds from a beneficiary's creditors, and survivorship clauses require the beneficiary to outlive the insured by a set period.
A beneficiary is the person or entity that receives the death benefit. The policy owner names the beneficiary and, with limited exceptions, may change that choice. The exam tests the categories of beneficiary, the difference between revocable and irrevocable designations, the Latin distribution terms, and the rules that resolve who survived whom.
Life insurance proceeds paid to a named beneficiary generally bypass probate and are paid directly, which is one of the chief planning advantages of life insurance.
Classes and Order of Beneficiaries
Beneficiaries are arranged in classes that determine payout order.
| Class | Who gets paid |
|---|---|
| Primary | First in line; receives proceeds if living at the insured's death |
| Contingent (secondary) | Paid only if no primary beneficiary survives |
| Tertiary | Paid only if no primary or contingent survives |
If no named beneficiary survives the insured, proceeds are paid to the insured's estate, where they may become subject to probate and creditor claims. Naming a contingent beneficiary avoids that outcome.
Revocable vs. Irrevocable
A revocable beneficiary can be changed by the owner at any time without the beneficiary's consent; this is the default.
An irrevocable beneficiary cannot be removed, and the policy owner cannot take a loan, surrender the policy, or change the beneficiary without that person's written consent. The irrevocable beneficiary holds a vested interest.
Beneficiaries can also be designated by class (for example, "my children") or by name ("John A. Smith"). A class designation automatically includes members who join the class later, such as a child born after the policy is issued.
Per Stirpes vs. Per Capita
These Latin terms decide what happens when a beneficiary dies before the insured but leaves descendants.
- Per stirpes ("by the branch"): a deceased beneficiary's share flows down to that person's children, splitting along family lines.
- Per capita ("by the head"): proceeds are divided equally among the surviving named beneficiaries, and a deceased beneficiary's children receive nothing.
Worked example: three children, one predeceased
Face amount $300,000, three adult children named equally; Child C dies before the insured leaving two kids.
| Distribution | Child A | Child B | Child C's two children |
|---|---|---|---|
| Per stirpes | $100,000 | $100,000 | $50,000 each ($100,000 branch) |
| Per capita | $150,000 | $150,000 | $0 |
Common Disaster and the Uniform Simultaneous Death Act
A common disaster clause addresses the case where the insured and the primary beneficiary die in the same accident and the order of death is unclear. Under the Uniform Simultaneous Death Act, if it cannot be shown that the beneficiary survived the insured, the proceeds are paid as if the insured survived the beneficiary, so the money passes to the contingent beneficiary instead of through the deceased beneficiary's estate.
A related tool is the survivorship clause (also called a time clause), which requires the beneficiary to outlive the insured by a stated period, often 30 to 60 days, before becoming entitled to proceeds. This prevents a quick double-probate of the same funds.
Spendthrift and facility-of-payment
- A spendthrift clause keeps proceeds (when paid in installments) out of reach of the beneficiary's creditors and bars the beneficiary from assigning future payments.
- A facility-of-payment clause, common in industrial policies, lets the insurer pay a relative or person who incurred funeral costs when no beneficiary is named.
Designations and the order of payment
Proceeds follow a strict class order. Primary beneficiaries are paid first; if none survive, contingent (secondary) beneficiaries inherit; tertiary beneficiaries follow them. If no named beneficiary survives the insured, proceeds default to the insured's estate (where they may face probate and creditor claims).
| Designation | Can owner change freely? | Consent needed for loans/surrender? |
|---|---|---|
| Revocable | Yes | No |
| Irrevocable | No | Yes — written consent of the beneficiary |
Beneficiaries may also be class designations ('my children') or specific named individuals; class designations automatically include after-born children unless stated otherwise.
Per stirpes, per capita, and simultaneous-death rules
- Per stirpes ('by the branch'): A deceased beneficiary's share passes down to that person's children. If a son predeceases the insured, the son's children split his share.
- Per capita ('by the head'): The proceeds are divided only among the surviving named beneficiaries; a deceased beneficiary's share is reallocated among the survivors, not their descendants.
The Uniform Simultaneous Death Act and the common disaster clause address the case where insured and beneficiary die in the same event with unclear order: the law presumes the insured survived the beneficiary, so proceeds go to the contingent beneficiary rather than through the beneficiary's estate.
Two protective clauses round out the topic: a spendthrift clause shields installment proceeds from the beneficiary's creditors, and a survivorship clause requires the beneficiary to outlive the insured by a stated period (e.g., 30 days) to collect.
A policy names three children equally on a per stirpes basis with a $600,000 face amount. One child predeceases the insured, leaving three children of her own. How is the benefit distributed?
Under the Uniform Simultaneous Death Act, when the insured and primary beneficiary die in a common accident and survivorship cannot be determined, the proceeds are: