6.2 Beneficiaries: Designations, Per Stirpes/Capita, Common Disaster
Key Takeaways
- Beneficiaries are classed by priority (primary, contingent/secondary, tertiary) — contingents collect only if all primaries predecease the insured.
- A revocable beneficiary can be changed at will; an irrevocable beneficiary must consent to a change, loan, assignment, or cash surrender.
- Per stirpes distributes a deceased beneficiary's share to that beneficiary's descendants; per capita splits equally among surviving named beneficiaries.
- The Uniform Simultaneous Death Act and common disaster clause presume the insured survived the beneficiary, directing proceeds to contingents or the estate.
- Proceeds paid to a named living beneficiary bypass probate; proceeds payable to 'the estate' enter probate and may be exposed to creditors.
The beneficiary is the person or entity that receives the death benefit. The policy owner names beneficiaries and, unless restricted, may change them. Beneficiary law is national in character because it draws on the Uniform Simultaneous Death Act and common contract principles tested everywhere.
Beneficiary Priority Classes
| Class | Who they are | When they collect |
|---|---|---|
| Primary | First in line | At the insured's death |
| Contingent (secondary) | Backup | Only if all primaries predecease the insured |
| Tertiary | Third tier | Only if all primary and contingent beneficiaries are gone |
If no named beneficiary survives the insured, proceeds default to the policy owner's estate, where they may face probate and creditor claims.
Revocable vs. Irrevocable
- A revocable beneficiary has no vested rights; the owner can change the designation, take loans, or surrender the policy freely.
- An irrevocable beneficiary has a vested interest. The owner cannot change the beneficiary, borrow against cash value, assign, or surrender the policy without the irrevocable beneficiary's written consent.
Exam tip: The single biggest consequence of an irrevocable designation is the loss of unilateral owner control — consent is required for almost every meaningful policy action.
Designation by Class vs. by Name
- By name (specific): 'Jane Doe' — only that individual collects.
- By class: 'my children' — the class is determined at the insured's death.
Class designations interact with the two distribution methods below, which decide what happens when a class member dies before the insured.
Insurable Interest and Naming a Beneficiary
A beneficiary does not need an insurable interest at the time proceeds are paid; insurable interest only has to exist at policy inception between the owner and the insured. Once issued, the owner may name nearly any person, trust, charity, or business as beneficiary.
Common beneficiary forms tested on the national exam:
- Individual — a named person.
- Trust — proceeds paid to a trustee for management (useful for minors).
- Estate — proceeds payable to 'the estate of the insured.'
- Class — 'my children,' resolved at death.
Minors and the Estate as Beneficiary
Insurers will not pay proceeds directly to a minor because a minor cannot give valid legal release. If a minor is named outright, the court may appoint a guardian or the funds wait in trust — a slow, costly result. Naming a trust or using a Uniform Transfers to Minors Act (UTMA) custodian avoids this.
Naming the estate as beneficiary is generally discouraged:
| Consequence | Effect |
|---|---|
| Probate | Proceeds pass through the probate process (delay, cost) |
| Creditor exposure | Estate proceeds can be reached by the insured's creditors |
| Loss of privacy | Probate is a public proceeding |
By contrast, proceeds paid to a named, surviving individual bypass probate, transfer quickly, and are shielded from the insured's creditors in most states.
Per Stirpes vs. Per Capita
Per stirpes ("by the branch") sends a deceased beneficiary's share down to that beneficiary's own descendants. Per capita ("by the head") splits the proceeds equally among the surviving named beneficiaries, ignoring the descendants of any who died.
Scenario
An insured names three children — A, B, and C — to share $300,000 equally. Child C dies before the insured, leaving two children (grandchildren of the insured).
| Method | A | B | C's line | Logic |
|---|---|---|---|---|
| Per stirpes | $100,000 | $100,000 | $100,000 split between C's 2 kids ($50k each) | C's branch keeps C's share |
| Per capita | $150,000 | $150,000 | $0 | Split equally among survivors A and B |
The dollar difference is large, which is exactly why the exam loves this comparison.
An insured leaves a $300,000 benefit to three children per stirpes. One child predeceases the insured, survived by two children of her own. How is the $300,000 distributed?
Common Disaster and Simultaneous Death
When the insured and the primary beneficiary die in the same accident, the order of death may be unknowable. Two overlapping rules resolve it:
- Common Disaster Clause: A policy provision presuming the beneficiary died first (i.e., the insured is presumed to have survived). This routes proceeds to the contingent beneficiary rather than through the deceased beneficiary's estate.
- Uniform Simultaneous Death Act (USDA): A state law presuming the insured survived the beneficiary when order of death cannot be determined, producing the same routing to contingents.
Why it matters
| Without the clause | With common disaster / USDA |
|---|---|
| Proceeds may pass through the beneficiary's estate (extra probate, possible creditors) | Proceeds go to the contingent beneficiary as intended |
Many policies also add a survivorship clause (often 30 days) requiring the beneficiary to outlive the insured by a set period to collect — otherwise proceeds pass to contingents.
Distinguishing the three protections
- Common disaster clause: a policy provision presuming the beneficiary died first in a shared accident.
- Uniform Simultaneous Death Act: a state statute reaching the same presumption when order of death is unknown.
- Survivorship (time clause): requires the beneficiary to survive a fixed number of days, even when order of death is clear.
All three steer proceeds to the contingent beneficiary and away from a deceased primary beneficiary's estate.
The insured and the primary beneficiary die in the same car accident with no proof of who died first. The policy contains a common disaster clause and names a contingent beneficiary. Who receives the proceeds?