A Florida life insurance policy includes a 'common disaster clause.' What is the primary purpose of this clause?
- ATo ensure that the policy's cash value is paid to the estate if all beneficiaries predecease the insured.
- BTo protect the contingent beneficiary's right to proceeds if the insured and primary beneficiary die simultaneously or in a short period.
- CTo waive premiums if the insured becomes disabled due to a common disaster.
- DTo increase the death benefit if the insured dies in a declared natural disaster.
Show answer & explanationAnswer & explanation
Correct answer: B. To protect the contingent beneficiary's right to proceeds if the insured and primary beneficiary die simultaneously or in a short period.
The common disaster clause (or Uniform Simultaneous Death Act) addresses situations where the insured and primary beneficiary die in the same accident or within a short period, making it difficult to determine who died first. It typically assumes the primary beneficiary died first, allowing proceeds to go to the contingent beneficiary, or if none, to the insured's estate.
Why the other options are wrong
- A. This relates to beneficiary designation and estate planning, but the clause's primary focus is on simultaneous death.
- C. This describes a waiver of premium rider, not a common disaster clause.
- D. This sounds like an accidental death benefit rider, not a common disaster clause.
Common Disaster Clause
A life insurance policy provision that specifies how death benefits will be distributed if the insured and primary beneficiary die in the same accident or within a short period of time.
- Prevents proceeds from going to primary beneficiary's estate
- Assumes primary beneficiary died first
- Benefits contingent beneficiary
- Often linked to Uniform Simultaneous Death Act
Memory trick: In a Common Disaster, the money doesn't just Vanish; it goes to the Next in line!