Life Insurance Beneficiaries and Underwriting
Beneficiary designations
The primary beneficiary is first in line; the contingent receives only if the primary has predeceased the insured. A revocable designation can be changed by the owner at will; an irrevocable designation requires the beneficiary's written consent to change, borrow, or surrender. Per stirpes distributes a deceased child's share to that child's descendants; per capita splits the proceeds equally among surviving named beneficiaries regardless of lineage. A minor cannot receive proceeds directly, so a guardian, trust, or UTMA arrangement should be named. Class designations ("my children") create ambiguity and are a favorite exam trap. A common disaster clause and the simultaneous death rule settle the order of death when both insured and beneficiary die together. Facility-of-payment clauses let the insurer pay limited amounts to a relative.
Underwriting
Underwriting classifies risk through the application, medical exams, attending physician statements, prescription databases, and the Medical Information Bureau, which shares coded information among member insurers. The Fair Credit Reporting Act requires notice when a consumer report is used and gives the applicant the right to know the reason for an adverse decision. HIPAA authorizations are required to obtain protected health information. Resulting classes are preferred, standard, substandard (table-rated), and declined. Risky hobbies, tobacco use, and family history shift the class.
Traps
Divorce does not automatically revoke a beneficiary designation in most states, so an unchanged form still pays the ex-spouse. STOLI - stranger-originated life insurance - lacks insurable interest and is unlawful. A settlement option chosen by the beneficiary controls how proceeds are paid.