Texas General Lines — Life, Accident, Health and HMOLife InsuranceMedium
A life insurance policy includes a provision that states if the insured and the primary beneficiary die in a common accident, and it cannot be determined who died first, the policy proceeds will be paid as if the insured survived the beneficiary. Which provision is this?
- ACommon Disaster Clause
- BIncontestable Clause
- CSpendthrift Clause
- DAssignment Provision
Show answer & explanationAnswer & explanation
Correct answer: A. Common Disaster Clause
The Common Disaster Clause, also known as the Uniform Simultaneous Death Act, is designed to protect the contingent beneficiaries by assuming the insured survived the primary beneficiary, ensuring the proceeds bypass the primary beneficiary's estate.
Why the other options are wrong
- B. The Incontestable Clause prevents the insurer from denying a claim due to misstatements after a certain period (usually 2 years).
- C. The Spendthrift Clause protects beneficiaries from creditors and prevents them from assigning away their interest in the policy proceeds.
- D. The Assignment Provision allows the policyowner to transfer ownership rights of the policy to another party.
Common Disaster Clause
A life insurance policy provision that specifies how proceeds will be distributed if the insured and primary beneficiary die in the same accident and the order of death cannot be determined, typically assuming the insured survived the beneficiary.
- Protects contingent beneficiaries.
- Prevents proceeds from going to the primary beneficiary's estate.
- Often based on the Uniform Simultaneous Death Act.
- Applies when order of death is unclear.
Memory trick: Common Disaster: When tragedy strikes, this clause prevents a common mess.