6.2 Beneficiaries: Designations, Per Stirpes/Capita, Common Disaster
Key Takeaways
- A revocable beneficiary can be changed at any time by the owner; an irrevocable beneficiary must consent to any change, loan, surrender, or assignment.
- Beneficiaries are classed as primary, contingent (secondary), and tertiary; contingents collect only if all primaries predecease the insured.
- Per stirpes passes a deceased beneficiary's share down to that person's descendants by branch, while per capita splits the proceeds equally among surviving named beneficiaries.
- The Uniform Simultaneous Death Act and common disaster clauses presume the insured survived the beneficiary, directing proceeds to contingents or the estate.
- Naming a specific person rather than 'my estate' keeps proceeds out of probate and away from the insured's creditors.
The beneficiary is the person or entity that receives the death benefit. How the owner names and classifies beneficiaries controls who gets paid, in what order, and whether the proceeds avoid probate. The exam tests the vocabulary of designations and the distribution rules that apply when a beneficiary dies before or with the insured.
A beneficiary can be an individual, but also a trust, a business entity, an estate, or a minor. Naming a minor outright is a trap — insurers will not pay proceeds directly to a child, so a guardian or trust must be arranged or payment is delayed by the courts. Spotting these structural problems is exactly the practical judgment the exam rewards.
Revocable vs. Irrevocable
| Designation | Owner's Control |
|---|---|
| Revocable | Owner may change the beneficiary, take loans, surrender, or assign at will |
| Irrevocable | Owner needs the beneficiary's written consent for those same actions |
Most designations are revocable so the owner keeps flexibility. An irrevocable designation gives the named beneficiary a vested interest — useful in divorce settlements or business agreements where one party wants assurance the coverage will not be redirected.
Classes of Beneficiaries
Beneficiaries are arranged in priority levels:
- Primary beneficiary — first in line to receive the proceeds
- Contingent (secondary) beneficiary — receives the proceeds only if every primary has predeceased the insured
- Tertiary beneficiary — third in line if both primary and contingent are gone
A beneficiary may also be named (a specific person) or by class (e.g., "my children"). Naming the estate as beneficiary subjects the proceeds to probate and exposes them to the insured's creditors, which is usually undesirable — a specific living beneficiary takes the money free of probate.
Quick Scenario
A policy names spouse as primary and two adult children equally as contingents. If the spouse is alive at the insured's death, the spouse takes 100%; the children receive nothing because a contingent collects only when all primaries are gone.
Per Stirpes vs. Per Capita
These two Latin phrases decide what happens to a deceased beneficiary's share.
- Per stirpes ("by the branch") — a deceased beneficiary's share flows down to that beneficiary's own descendants.
- Per capita ("by the head") — the proceeds are divided equally among the beneficiaries who are actually living.
Worked Example
The insured names three children — A, B, and C — to share $300,000 equally. Child C dies before the insured, leaving two children (the insured's grandchildren).
| Method | A | B | C's line |
|---|---|---|---|
| Per stirpes | $100,000 | $100,000 | $100,000 split between C's two children ($50,000 each) |
| Per capita | $150,000 | $150,000 | $0 — C's descendants get nothing |
Under per stirpes, the money stays in C's branch of the family. Under per capita, it is redistributed only among the surviving named beneficiaries A and B.
Simultaneous Death and Common Disaster
When the insured and the primary beneficiary die at the same time (a car crash, for example), the law must decide who is presumed to have survived.
- The Uniform Simultaneous Death Act presumes the insured survived the beneficiary when the order of death cannot be determined. Proceeds then pass to the contingent beneficiary or, if none, to the insured's estate.
- A common disaster clause (also called a survivorship clause) goes further: it requires the beneficiary to outlive the insured by a stated period, often 30, 60, or 90 days, to collect. If the beneficiary dies within that window, proceeds go to the contingent.
The practical effect of both rules is the same — they keep the death benefit from passing briefly into the beneficiary's estate (and then to the beneficiary's heirs or creditors) and instead route it to the people the insured actually intended.
Without a survivorship rule, proceeds could land in the beneficiary's estate for a single day, trigger a second round of estate handling, and reach people the insured never meant to benefit. That is why a well-drafted common disaster clause with a 30-to-90-day survival requirement is a standard recommendation when spouses are each other's primary beneficiary.
An insured names three children equally as beneficiaries 'per stirpes.' One child dies before the insured, survived by two children of his own. How are the $300,000 proceeds distributed?
Under the Uniform Simultaneous Death Act, if the insured and the primary beneficiary die in the same accident and the order of death cannot be determined, what happens to the proceeds?
When the Beneficiary Predeceases the Insured
If a named beneficiary dies before the insured and no contingent is named, the proceeds pass by the succession of classes (contingent, then tertiary) or, if none survive, to the insured's estate which exposes the money to probate and creditors. Naming a contingent (secondary) beneficiary avoids this.
Under a per capita designation, surviving named beneficiaries split the share of any who predecease; under per stirpes, a deceased beneficiary's share passes to that beneficiary's own heirs (e.g., the children of a deceased adult child).
A policy names three adult children equally, per stirpes. One child dies before the insured, leaving two children of her own. At the insured's death, that deceased child's one-third share goes to:
Common Disaster, Minors, and Spendthrift Protection
The Uniform Simultaneous Death Act and a common disaster clause presume the insured survived the beneficiary when both die together with no clear order, so proceeds pass to the contingent beneficiary rather than through the deceased primary's estate.
A minor generally cannot receive proceeds directly; a guardian or trust is required, so the exam favors naming a trust or using the policy's facility-of-payment options for minors. A spendthrift clause combined with an installment settlement option protects proceeds from the beneficiary's creditors until paid out.
Exam Tip: A common disaster clause protects the contingent beneficiary's right to receive the proceeds and keeps the death benefit out of the primary beneficiary's estate.