Life & Health Insurance Exam (National Portion)Policy Provisions, Options, and RidersHard
A life insurance policyowner wants to ensure that if the primary beneficiary dies before the insured, the death benefit will pass to the primary beneficiary's children, rather than reverting to the insured's estate or a contingent beneficiary. Which designation should the policyowner use for the primary beneficiary?
- AIrrevocable Beneficiary
- BContingent Beneficiary
- CPer Capita
- DPer Stirpes
Show answer & explanationAnswer & explanation
Correct answer: D. Per Stirpes
A 'Per Stirpes' designation means 'by the branch' or 'by the root'. If a primary beneficiary designated 'per stirpes' predeceases the insured, their share of the death benefit will pass to their living descendants (children, grandchildren, etc.) rather than to other named beneficiaries or the estate.
Why the other options are wrong
- A. This relates to the policyowner's ability to change the beneficiary, not how proceeds are distributed if the beneficiary dies.
- B. A contingent beneficiary only receives proceeds if all primary beneficiaries are deceased, but 'Per Stirpes' dictates how a primary beneficiary's share is divided among their descendants.
- C. Per Capita means 'by the head' and distributes proceeds equally among all living beneficiaries in the designated class, not specifically to the descendants of a deceased beneficiary.
Per Stirpes vs. Per Capita
Methods for distributing death benefits to beneficiaries: 'Per Stirpes' distributes by branch, so a deceased beneficiary's share goes to their descendants. 'Per Capita' distributes equally among all living beneficiaries in a class.
- Per Stirpes: 'by the branch', ensures family lineage receives share.
- Per Capita: 'by the head', equal share for all living beneficiaries.
- Important for multi-generational beneficiary planning.
Memory trick: Per 'STIRPES' is for your 'STIRP' (family tree) and its branches.