Life License Qualification Program (LLQP) Practice Exam

In the event that the primary beneficiary of a life insurance policy dies before the insured, what happens?

1. The policy proceeds are automatically distributed to the insured's estate

2. The contingent beneficiary receives the policy proceeds

3. The beneficiaries are required to wait until the insured’s death

4. The policy reverts to the insurance company

The correct answer is: The contingent beneficiary receives the policy proceeds

In the scenario where the primary beneficiary of a life insurance policy dies before the insured individual, the proceeds of the policy are directed to the contingent beneficiary, assuming one has been designated. This is a standard practice in life insurance policies where a contingent beneficiary serves as an alternative recipient of the policy benefits if the primary beneficiary is no longer living at the time of the insured's passing. The role of the contingent beneficiary is crucial, as it ensures that the policy proceeds do not lapse into the estate of the insured or go unclaimed, promoting a smoother process and ensuring the intended recipients receive the funds. If there is no contingent beneficiary listed, then the proceeds would typically be directed to the insured's estate, leading to potential delays or complications with the distribution of those assets. The presence of a contingent beneficiary is thus an important aspect of estate planning and beneficiary designations in life insurance policies, helping to mitigate uncertainties in the inheritance process.