Question

Bob and Tom start a business. Since each partner contributes an important element to the success of the business, they decide to take life insurance policies out on each other, and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob's death. In this situation, who will receive Bob's policy proceeds?

A. Tom's spouse
B. Bob's estate
C. Bob's spouse
D. Tom

Answer 1

D. Tom

Tom will receive the policy proceeds if he remains the named beneficiary on Bob's life insurance policy at the time of Bob's death, despite the business being dissolved.

Step-by-step explanation:

In the scenario described, where Bob and Tom are business partners with life insurance policies naming each other as beneficiaries, the beneficiary of the insurance policy at the time of Bob's death will depend on who is the named beneficiary on the policy.

If no changes were made to the policy after their retirement and the dissolution of the business, and if Bob did not change his beneficiary from Tom to someone else, Tom will receive the policy proceeds.

Life insurance policies are contracts, and the proceeds go to the beneficiaries named in the policy, regardless of the marital status of either party or the dissolution of their business partnership.

In this situation, the policy proceeds from Bob's life insurance policy will go to the named beneficiary, which is Tom. Even though the business was dissolved and both partners were still married at the time of Bob's death,

the life insurance policy would not become part of Bob's estate. Instead, the policy proceeds will be paid directly to Tom, as he was named as the beneficiary.