6.2 Beneficiaries: Designations, Per Stirpes/Capita, Common Disaster
Key Takeaways
- Primary beneficiaries are paid first; contingent (secondary) and tertiary beneficiaries are successive backups.
- A revocable beneficiary can be changed at will, while an irrevocable beneficiary has a vested interest and must consent to most changes.
- Per stirpes keeps a deceased beneficiary's share within that beneficiary's branch (their descendants); per capita splits among surviving named beneficiaries only.
- A common disaster (survivorship) clause requires the beneficiary to outlive the insured by a set period, typically 30-60 days, before the benefit vests.
- Naming the estate as beneficiary exposes proceeds to probate and creditors and is generally discouraged.
The beneficiary is the party the policy owner names to receive the death benefit. Correct designations decide who gets paid, how fast, and whether the money is exposed to probate. Beneficiary questions appear repeatedly on the Life & Health exam.
Levels of Beneficiaries
| Level | Receives the benefit when |
|---|---|
| Primary | Living at the insured's death |
| Contingent (secondary) | The primary has predeceased or cannot take |
| Tertiary | Both primary and contingent cannot take |
If no named beneficiary survives, proceeds default to the policy owner's estate, which triggers probate. Multiple primaries can share by percentage (for example 50/50). A beneficiary should be named specifically — by full name and relationship — so the insurer can locate and verify the payee quickly. Designations should be reviewed after major life events such as marriage, divorce, birth, or the death of a named party, because an outdated beneficiary form, not a will, controls who gets paid.
Revocable vs. Irrevocable
Revocable Beneficiary
- The owner may change it anytime without the beneficiary's consent.
- This is the default designation and keeps full owner control.
Irrevocable Beneficiary
- Cannot be changed without the beneficiary's written consent.
- The beneficiary holds a vested interest, so the owner generally needs consent to take loans, assign, or surrender.
| Owner action | Revocable | Irrevocable |
|---|---|---|
| Change beneficiary | No consent needed | Consent required |
| Take policy loan | No consent | Usually consent |
| Assign policy | No consent | Consent required |
| Surrender policy | No consent | Consent required |
Trap: An irrevocable beneficiary's right is a major restriction on ownership — do not assume the owner keeps unilateral control once the designation is irrevocable.
A policy owner wants to take a loan against cash value, but the policy names an irrevocable beneficiary. What is required?
Class Designations
A class designation names a group instead of individuals, for example "my children." It automatically adds members born later and drops members who die, but it can be ambiguous about stepchildren, adopted children, or how a deceased member's share is divided. That last question is answered by per stirpes versus per capita.
Per Stirpes vs. Per Capita
- Per stirpes ("by the branch") — a deceased beneficiary's share passes down to that beneficiary's descendants.
- Per capita ("by the head") — a deceased beneficiary's share is redistributed among the surviving named beneficiaries; descendants get nothing unless every parent in that level has died.
Worked Split
An insured names three children equally. Child B has already died, leaving two children of her own. The death benefit is $300,000.
| Method | Child A | Child B's two kids | Child C |
|---|---|---|---|
| Per stirpes | $100,000 | $50,000 each ($100,000 total) | $100,000 |
| Per capita | $150,000 | $0 | $150,000 |
Under per stirpes the grandchildren inherit their mother's one-third. Under per capita only the surviving children at that level split the money.
An insured names three children equally, per stirpes. One child has predeceased the insured, leaving two surviving children. On a $300,000 benefit, what do that deceased child's two children receive in total?
Common Disaster Clause
A common disaster clause (survivorship clause) addresses the insured and primary beneficiary dying in the same event. It requires the beneficiary to survive the insured by a stated period — commonly 30 to 60 days — before the benefit vests in that beneficiary.
- If the beneficiary dies within the survivorship period, they are treated as having predeceased the insured.
- The benefit then passes to the contingent beneficiary rather than into the deceased primary's estate.
Scenario
A policy uses a 30-day survivorship requirement. The insured and spouse (primary) are in the same crash; the spouse survives 9 days. The spouse is treated as predeceased, so the children (contingent) receive the benefit — keeping it out of the spouse's estate and its probate and tax exposure.
Simultaneous Death and the Estate
The Uniform Simultaneous Death Act governs when the order of deaths cannot be proven: the insured is presumed to have survived the beneficiary, so proceeds pass as if the beneficiary predeceased — usually to the contingent.
Naming "my estate" as beneficiary is generally discouraged because the proceeds:
- become subject to probate (delay, cost, public record), and
- are exposed to the insured's creditors, unlike proceeds paid to a named living beneficiary.
Minor beneficiaries and the need for a guardian or trust
Insurers will not pay death proceeds directly to a minor, because a minor cannot give valid legal release. If a minor is named without arranging for a custodian, the court must appoint a guardian, delaying payment and adding cost. Planners avoid this by naming a trust (or a custodian under the Uniform Transfers to Minors Act) so proceeds are managed until the child reaches majority.
Spendthrift and creditor protection
When proceeds are left under a settlement option with a spendthrift clause, the beneficiary cannot assign or commute future payments, and creditors generally cannot reach them. This is a common reason an owner chooses installments over a lump sum.
Facility-of-payment clause
Some policies (especially industrial/final-expense) include a facility-of-payment clause letting the insurer pay a portion to whoever appears responsible for final expenses when no beneficiary survives or the named beneficiary cannot be located — a small-dollar convenience provision the exam occasionally references.
Why do insurers generally refuse to pay life insurance proceeds directly to a minor beneficiary?
Estate as beneficiary and the probate consequence
If no beneficiary survives, or the owner names the estate, the proceeds are paid to the estate and pass through probate, exposing them to the deceased's creditors and to potential estate tax and delay. Naming a living person or a trust instead keeps proceeds out of probate and lets them pass directly. The Uniform Simultaneous Death Act presumes, when insured and beneficiary die together with no clear order, that the beneficiary died first, so proceeds pass to the contingent beneficiary rather than into the beneficiary's estate.