Beneficiaries - Revocable or Irrevocable

• Revocable - can be changed anytime
• Irrevocable - nothing can be done to the policy with-out beneficiary's consent; except change the premium mode.

MR. WATSON: Okay. Now I can name a beneficiary to be a revocable beneficiary or an irrevocable beneficiary . If I name it revocable, can I change it? Yes, anytime I want.

MR. WATSON: I must fill out a change of beneficiary form and the date on the form when I signed the change is the date the beneficiary has been changed, even if I die before the company receives the form.

MR. WATSON: This is the most common and is called the "recording method". Sometimes you will name an irrevocable beneficiary. You can't change it if you do that. You can't even borrow money, because that would reduce the face amount, wouldn't it?

ALL: Yes.

MR. WATSON: You can't even borrow money against it without that irrevocable beneficiary's permission. Look here. A Judge told me to name Lisa, my ex-wife, as irrevocable beneficiary of my $500,000 policy. It's got $100,000 of cash value in there. She's irrevocable beneficiary. I must receive her permission to borrow money from the policy.

WOMAN: Good luck with that.

MR. WATSON: Is she going to sign?

ALL: No.

MR. WATSON: The only thing the policyowner can do without the irrevocable beneficiary's signature is to change the premium mode, the way the premiums are paid.

MR. WATSON: Heck, no! You can't reduce that policy at all without her permission. Some, most, irrevocable beneficiaries have a reversionary clause attached. "Reversionary clause" means it reverts. So if she dies-I have named her as irrevocable beneficiary with a reversionary clause. If she dies, it reverts back to me to name whomever I want to.

MR. WATSON: Let's say I had to name her as irrevocable beneficiary, without a reversionary clause because of a divorce ruling. That means she gets to name whomever she wants to get the money if she dies before me. That means she gets to name another beneficiary of her choosing in case she dies before I do.

 

Uniform Simultaneous Death Act ***

• If insured and beneficiary die in the same accident, and we can't tell who died first, proceeds are paid as if the insured died last

MR. WATSON: The Uniform Simultaneous Death Act . "Uniform" means it's federal. "Simultaneous" means it's at the same time. "Death Act" means it's a law; it's always in your policy. This is intended for "special situations", when the insured & primary beneficiary die as a result of the same accident and they can't tell who died first. It is there by law.

MR. WATSON: It reads: "If the insured and a primary beneficiary die as the result of the same accident and they can't tell who died first, the proceeds are paid as if the insured died last." Think about it!

MR. WATSON: Okay. Look here. Lisa is my wife. I have children from a prior marriage and Lisa has children from a prior marriage.

MR. WATSON: Lisa is my primary beneficiary and I am her primary beneficiary.  My kids are my secondary beneficiaries.

MR. WATSON: We are riding in the pickup truck. We collide with a moving tree. Both dead when the ambulance gets there. Who died first, who died last?

MR. WATSON: They can't tell who died first. So, they'll pay the proceeds as if the insured, me, died last, or, the beneficiary, her, died first. That way, my kids (secondary beneficiaries) step up and take my money. It works the same way on her policy, her kids get the money. Got it? It MUST follow an order. The order being who is living when the insured died.

MR. WATSON: But, here's another problem, a different scenario. What would happen if - in the same scenario, when the ambulance driver comes up to the scene and he sees Lisa breathing, she is alive, barely?

MR. WATSON: Who died first?

WOMAN: You did.

MR. WATSON: My proceeds then go to Lisa. She dies en route to the hospital. Now, it becomes part of her estate, and her kids get it. So her kids got her proceeds, and her kids got mine. My kids get nothing. because I died first.

MR. WATSON: But, there is something we can add during the application process. The Common Disaster Provision.

 

Common Disaster Provision ***

MR. WATSON: The prior example showed how one could alienate a beneficiary, meaning my kids received nothing. You can add something called the common disaster provision , and it reads as follows. It contains two parts.

1. if the insured and primary beneficiary die in the same accident, and there is no proof of who died first, the policy will pay as if the insured died last (USDA)
2. the primary beneficiary must survive (outlive) the insured for a certain period of time...14 days, or 30 days,

The first part is the USDA, and we know the USDA is there by law. But the policy-owner can add a time frame, let's say 30 days. That way, Lisa has to survive me by 30 days. If she survives me by 30 days, it's as if she survived me, I died first. But if she dies within that time frame, then it's as if she died first. You have to write that in the policy.

MAN: For your policy, can that be avoided by her being the primary and your children being the contingent?

MR. WATSON: They were contingent. She was my primary. My kids were my secondaries. You understand? It is all about who died first.

MAN: Yes.

MR. WATSON: But if she survives me just for a minute, then the money goes to her, without the Common Disaster Provision added.. It would go through her estate and my kids don't see any of it. It is all about who died first or, who died last.

MAN: I see.

WOMAN: May I ask a question?

MR. WATSON: Sure, anything.

WOMAN: Can you make your dog beneficiary?

MR. WATSON: No, but you can put it in a trust for your dog. Some do.