Final answer:
If Sherrie, the primary beneficiary, dies before John, the death benefit will go to the contingent beneficiary, Collin. Death benefits from life insurance policies are not forfeited but are distributed to the beneficiaries as per the policy's designations, or to the estate if no beneficiaries are eligible.
Step-by-step explanation:
Based on the scenario provided, where John specifies Sherrie as the beneficiary of his death benefit, and assuming Collin is the contingent beneficiary, the question is to determine what happens to the death benefit in the event of Sherrie's death before John's. To deduce the correct statement, we must understand the workings of life insurance beneficiaries and contingent planning. When a primary beneficiary like Sherrie predeceases the policyholder, John, the benefit typically goes to the contingent beneficiary, who in this case would be Collin. Therefore, the most accurate answer would be that the death benefit goes to Sherrie's contingent beneficiary, Collin, as he would be next in line to receive the benefit.
In the event that both the primary and contingent beneficiaries are deceased, and if no successor is named, the benefit could potentially be paid into the deceased policyholder's estate. However, this is not described in the given scenario. Furthermore, death benefits are not forfeited under normal circumstances; they are either paid out to a designated beneficiary or the insured's estate, which would then be distributed according to the deceased's will or state intestacy laws if no will exists. As such, the correct answer to the question is : The death benefit will go to Sherrie's contingent beneficiary.
Life insurance policies are designed to provide financial security to the insured's chosen beneficiaries, and understanding beneficiary designations and contingent planning is crucial when setting up these policies. The primary beneficiary, in this case Sherrie, is the first in line to receive the death benefit, followed by a contingent beneficiary, Collin, who would receive the benefit if the primary beneficiary cannot. Cash-value life insurance policies, like the one potentially described in this scenario, typically incorporate this structure of primary and contingent planning.