6.2 Beneficiaries: Designations, Per Stirpes/Capita, Common Disaster
Key Takeaways
- Primary beneficiaries are paid first; contingent and tertiary beneficiaries are paid only if higher classes have predeceased.
- A revocable beneficiary can be changed freely; an irrevocable beneficiary must consent to changes, loans, or surrender.
- Per stirpes sends a deceased beneficiary's share to that person's heirs; per capita splits only among surviving named beneficiaries.
- The Uniform Simultaneous Death Act presumes the insured survived, routing proceeds to contingents or the estate.
- A common disaster clause requires the beneficiary to outlive the insured by a stated period to collect.
Naming Who Gets the Money
A beneficiary is the person or entity that receives the death benefit when the insured dies. Choosing and classifying beneficiaries correctly is one of the most practical owner decisions, and the national exam tests the terminology precisely. The death benefit paid to a named beneficiary generally avoids probate and passes income-tax-free.
Primary, Contingent, and Tertiary
Beneficiaries are ranked by class:
- Primary beneficiary — first in line to receive proceeds.
- Contingent (secondary) beneficiary — receives proceeds only if every primary beneficiary has predeceased the insured.
- Tertiary beneficiary — third in line, paid only if all primaries and contingents are gone.
If no living beneficiary exists at the insured's death, proceeds are paid to the insured's estate, exposing the money to probate and potential creditor claims. That is why naming a contingent beneficiary is good practice.
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 or have the benefit reduced without that beneficiary's written consent. An irrevocable beneficiary effectively owns a vested interest, so the owner cannot take a policy loan, surrender the policy, or change the beneficiary without permission.
Individuals, Classes, and Estates
Beneficiaries may be named specifically ("my wife, Jane Doe") or by class ("my children"). A class designation automatically includes children born later. Naming the estate as beneficiary is generally discouraged because it forfeits probate avoidance.
Per Stirpes vs. Per Capita
When a beneficiary in a class dies before the insured, distribution rules decide where that share goes.
- Per stirpes ("by the branch") — a deceased beneficiary's share passes down to that person's own heirs (their children).
- Per capita ("by the head") — proceeds are split equally among the surviving named beneficiaries; a deceased beneficiary's children get nothing, and the survivors' shares increase.
Worked Example
An insured names three children equally; child C dies before the insured, leaving two grandchildren.
| Method | Surviving Child A | Surviving Child B | Grandchildren (C's branch) |
|---|---|---|---|
| Per stirpes | 1/3 | 1/3 | split C's 1/3 (1/6 each) |
| Per capita | 1/2 | 1/2 | $0 |
Minor Beneficiaries and the Spendthrift Clause
Naming a minor as a direct beneficiary creates problems: most insurers will not pay proceeds to a minor, so a court-appointed guardian or trust must receive the funds, causing delay and expense. A better approach is to name a trust or to use the Uniform Transfers to Minors Act (UTMA) custodianship.
A spendthrift clause protects proceeds left under a settlement option from the beneficiary's creditors and prevents the beneficiary from assigning or commuting future payments. It is most effective when the proceeds are paid in installments rather than as a lump sum.
Common Disaster Clause and the Uniform Simultaneous Death Act
When the insured and the primary beneficiary die in the same accident and it is unclear who died first, two safeguards apply.
The Uniform Simultaneous Death Act presumes the insured survived the beneficiary, so proceeds pass to the contingent beneficiary or the insured's estate rather than into the deceased beneficiary's estate.
A common disaster clause in the policy requires the beneficiary to survive the insured by a stated period (often 15 or 30 days) to collect. If the beneficiary dies within that window, proceeds go to the contingent beneficiary. Both rules keep the money from passing through an extra estate and being taxed or probated twice.
An insured names her three sons equally, per stirpes. One son dies before her, survived by his two daughters. How are the proceeds distributed?
Under a common disaster clause, the insured and primary beneficiary die in the same crash and the beneficiary dies two days later. The clause requires 30 days of survival. Who receives the proceeds?
Revocable vs. Irrevocable and Beneficiary Classes
A revocable beneficiary can be changed by the owner at any time without consent — the default. An irrevocable beneficiary has a vested right; the owner needs that person's written consent to change the designation, take a loan, or assign the policy.
Beneficiaries are ranked by class:
| Class | When they collect |
|---|---|
| Primary | First in line at the insured's death |
| Contingent (secondary) | Only if all primaries predecease the insured |
| Tertiary | Only if primary and contingent are gone |
If no beneficiary survives, proceeds are paid to the insured's estate, exposing them to probate and creditors — a key reason to name and update beneficiaries.
Per Stirpes, Per Capita, and the Common Disaster Clause
Distribution among heirs is heavily tested:
- Per stirpes ("by branch"): a deceased beneficiary's share passes down to their children. Example: two children are 50/50 primaries; one predeceases leaving two kids — those grandchildren split that 50% (25% each), the surviving child still gets 50%.
- Per capita ("by head"): only living named beneficiaries share equally; a predeceased beneficiary's share is redistributed among survivors, not their children.
- Common disaster (Uniform Simultaneous Death): if insured and primary beneficiary die in the same event and order of death is unclear, the law presumes the insured survived, so proceeds flow to the contingent beneficiary rather than into the primary's estate.
An insured names two children as equal primary beneficiaries 'per stirpes.' One child dies before the insured, leaving two children of her own. At the insured's death, how are proceeds split?