T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive?
- A. $1,000,000
- B. $500,000
- C. $250,000
- D. $0
The correct answer and explanation is:
iturn0image0turn0image2turn0image4turn0image6The correct answer is D. $0.
Explanation:
In an Accidental Death and Dismemberment (AD&D) insurance policy, beneficiaries are designated to receive the death benefit upon the insured’s accidental death. These beneficiaries are typically categorized as primary and contingent. Primary beneficiaries are first in line to receive the benefits, while contingent beneficiaries are next in line if all primary beneficiaries predecease the insured.
In this scenario, T and S were named co-primary beneficiaries of their father’s $500,000 AD&D policy, with their mother designated as the contingent beneficiary. This means that T and S would each receive 50% of the death benefit ($250,000 each) upon their father’s accidental death.
Five years later, S dies of natural causes, leaving T as the sole surviving primary beneficiary. Shortly thereafter, the father dies in a scuba accident, which is considered an accidental death and is covered by the AD&D policy.
Since T is the surviving primary beneficiary at the time of the insured’s death, T is entitled to the entire death benefit of $500,000. The contingent beneficiary, in this case, the mother, receives the death benefit only if all primary beneficiaries have predeceased the insured. However, because T, a primary beneficiary, survived the insured, the contingent beneficiary does not receive any portion of the death benefit.
Therefore, the mother will receive $0 from the death benefit, as the entire $500,000 will be paid to T, the surviving primary beneficiary.
Key Points:
- Primary Beneficiaries: Individuals first in line to receive the death benefit upon the insured’s death.
- Contingent Beneficiaries: Individuals who receive the death benefit only if all primary beneficiaries have predeceased the insured.
- Scenario Outcome: With S’s prior death, T becomes the sole primary beneficiary and receives the full death benefit. The contingent beneficiary (the mother) receives nothing since a primary beneficiary (T) survived the insured.
It’s important to regularly review and update beneficiary designations to ensure that the death benefits are distributed according to the insured’s current wishes and to account for any changes in circumstances.