Question

Amy recently purchased an insurance policy that pays on her husband Sheldon's life. The benefit is payable to their son Howard. Amy also noted on the policy that if she were to predecease Sheldon, the policy should transfer to her sister Bernadette. Which of the following concerning this situation is correct?

a. Amy is the life insured
b. Howard is the contingent beneficiary
c. Bernadette is the successor policyholder
d. Sheldon is the trustee

Answer 1

Amy is not the life insured; Sheldon is, as the insurance policy is on his life. Howard is the primary beneficiary since he's intended to receive the benefit, while Bernadette is the contingent owner, who would take over the policy in case Amy predeceases Sheldon.

Step-by-step explanation:

In the scenario provided, Amy has purchased a life insurance policy on her husband, Sheldon. The benefit is intended for their son Howard, making him the beneficiary. Should Amy pass away before Sheldon, she has specified that the policy should be transferred to her sister, Bernadette. Thus, Amy is not the life insured; instead, Sheldon is the life insured because the policy is on his life.

Howard is the primary beneficiary as the benefit is payable to him. Bernadette is named as the contingent owner (sometimes informally referred to as the successor policyholder) who would assume control of the policy should Amy predecease Sheldon. Lastly, Sheldon is not the trustee; he is the life insured or the person upon whose life the insurance is based.