Contingent Beneficiary

A contingent beneficiary receives the death benefit when:

1. A.The owner is aliveThe owner's survival is beside the point, and the owner may not even be the insured. What governs is the status of the primary beneficiary when the insured dies.
2. B.Premiums are unpaidUnpaid premiums lead to lapse under the policy's own terms, which bears on whether any benefit exists at all. That is a separate question from which named party collects.
3. C.The primary beneficiary is still livingThis is the situation in which the primary beneficiary is the one paid. The secondary designation exists as a backup and takes effect only when the primary cannot collect.
4. D.The primary beneficiary has died before the insuredCorrect - contingents are next in line.

Why: The contingent (secondary) beneficiary is paid if the primary beneficiary has predeceased the insured.

If the sole named beneficiary predeceases the insured and there is no contingent beneficiary, the proceeds:

1. A.Go to the agentThe producer is compensated by commission from the insurer. A gap in the beneficiary designation creates no claim for whoever sold the policy.
2. B.Are paid to the beneficiary's heirs automaticallyThis is the strongest distractor, because it is what happens under a per stirpes designation or when the beneficiary outlives the insured and then dies with a vested claim. Here the beneficiary died first, so no interest ever vested that could pass to that beneficiary's own heirs.
3. C.Are forfeited to the insurerInsurers do not keep proceeds when a designation fails, since that would let the company benefit from a gap in its own contract. The claim remains payable, with the insured's estate stepping in as the default recipient.
4. D.Are paid to the insured's estateCorrect - default to the estate.

Why: With no surviving or contingent beneficiary, the proceeds are paid to the insured's estate.

Emiliano dies leaving a $700,000 policy naming his sister Paloma as primary beneficiary and his nephew Teo as contingent. Paloma, who has a large judgment against her, executes a valid QUALIFIED DISCLAIMER of the proceeds. The result is that:

1. A.Paloma may direct the insurer to pay the $700,000 to any person she chooses, since she has given up her own claimDirecting the proceeds would be an acceptance followed by a gift, which disqualifies the disclaimer.
2. B.Teo receives the $700,000 as contingent beneficiary, and Paloma is treated as though she predeceased EmilianoCorrect. A qualified disclaimer passes the interest to the next taker under the contract without the disclaimant ever owning it.
3. C.Paloma's judgment creditor may still attach the proceeds, because a beneficiary cannot disclaim to defeat a creditorA valid, timely disclaimer means she never acquired the interest, so there is generally nothing for the creditor to reach.
4. D.The $700,000 passes to Emiliano's estate, because a disclaimer voids the entire beneficiary designationA disclaimer removes only the disclaiming beneficiary. The contingent designation remains fully operative.

Why: A qualified disclaimer is a refusal to accept an interest, made in writing within the period the tax law allows and before the beneficiary has accepted any benefit. The disclaiming party is treated as having predeceased the insured, so the proceeds pass to the next taker in line under the policy, here the contingent beneficiary. Because Paloma never takes the money, she cannot direct where it goes and her creditors generally have nothing to attach. The clue is that a valid disclaimer, not a gift, is what she executed.