Texas General Lines — Life, Accident, Health and HMOTexas Statutes and Rules Specific to Life InsuranceHard
A life insurance policy in Texas has a 'Common Disaster Clause.' The insured and the primary beneficiary are involved in a fatal car accident. The insured dies instantly, and the primary beneficiary dies 10 days later. According to the Common Disaster Clause, who will receive the death benefit?
- AThe contingent beneficiary.
- BThe primary beneficiary's estate.
- CThe insurer, if no other beneficiaries are named.
- DThe insured's estate.
Show answer & explanationAnswer & explanation
Correct answer: A. The contingent beneficiary.
A Common Disaster Clause typically states that if the primary beneficiary dies within a specified period (e.g., 10-30 days) after the insured, the death benefit will be paid to the contingent beneficiary. This prevents the proceeds from going through the primary beneficiary's estate.
Why the other options are wrong
- B. This would happen if there were no common disaster clause or if the primary beneficiary outlived the clause's stipulated period.
- C. The insurer would only retain the death benefit if no beneficiaries (primary, contingent, or estate) could be found or were legally entitled to receive it, which is rare.
- D. The insured's estate would receive the benefit only if no primary or contingent beneficiaries survived the insured and the common disaster clause's period.
Common Disaster Clause
A life insurance policy provision that specifies how death benefits will be distributed if the insured and the primary beneficiary die in the same accident or within a short period of each other. It typically directs proceeds to the contingent beneficiary.
- Addresses simultaneous or near-simultaneous deaths.
- Stipulates a specific survival period for the beneficiary (e.g., 10-30 days).
- If primary beneficiary dies within this period, proceeds go to contingent beneficiary.
- Prevents proceeds from being tied up in primary beneficiary's estate.
Memory trick: Common disaster, contingent's claim, avoids the estate's long game.