AD Banker Life & Health Chapter 4

Terms in this set (59)

Per Capita - This is a method of distribution that will pay to surviving beneficiaries equally if a named beneficiary predeceases the insured. For example, if an insured names his/her 3 children as beneficiaries and one of the children predeceases the insured, the benefit will pay equally to the surviving named beneficiaries. Each beneficiary receives 50% of the death benefit in this example.

Per Stirpes - This is a method of distribution that will pay a deceased beneficiary's share to the heirs of any beneficiary who predeceases the insured. If an insured names his/her 3 children as beneficiaries and one of the children predeceases the insured, the deceased beneficiary's share will be paid to their heirs. The surviving beneficiaries will each receive 1/3 of the benefit and the remaining 1/3 will be paid to the deceased beneficiary's heirs in this example.

Beneficiary designations are distributed per capita unless stated differently.

Estate - By default, if the insured outlives all other beneficiaries, benefits are paid to the insured's estate. The death benefit increases the estate value and may have adverse tax implications.

Trust - When a recipient is not to have direct access to the death benefits, such as in the case of minor children, and the proceeds are to be distributed as per the insured's directions set forth in a trust. A trust beneficiary may also be used in estate tax planning strategies when using an irrevocable life insurance trust.

Minors - If minors are named as beneficiaries but no trust has been established, the funds are placed in a settlement option (held with interest), with the insurer acting as trustee. The guardian or legally responsible adult may receive payments for the benefit of the child until the child is eligible to receive the lump sum at the age of majority.

Creditor - Designated by assignment or named at application to cover indebtedness. The creditor may either be the named beneficiary or can be the assignee under a collateral assignment. The creditor can only receive the amount of the indebtedness. The benefit may be purchased as decreasing term insurance so the benefit will decrease by the amount of the loan automatically.
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