New Jersey Life and Health State Practice Exam

Which policy provision protects the contingent beneficiary when both insured and primary beneficiary die in a common disaster?

1. Common disaster clause

2. Spendthrift clause

3. Nonforfeiture clause

4. Accident indemnity clause

The correct answer is: Common disaster clause

The common disaster clause is a provision found in life insurance policies that specifically addresses situations where the insured and the primary beneficiary die simultaneously or within a short time frame due to a common event, such as a natural disaster or accident. This clause stipulates that if the primary beneficiary dies under such circumstances, the insurance payout is directed to the contingent beneficiary instead of the estate of the primary beneficiary. This is critical for ensuring that the intent of the policyholder is honored, as it protects the financial interests of the contingent beneficiary, who is the next in line to receive the benefits. This provision helps prevent potential disputes over the life insurance proceeds and clarifies the distribution of funds when such unfortunate events occur, ensuring that money goes to the individuals the policyholder intended to support. The other options represent different aspects of insurance policies. The spendthrift clause, for example, aims to protect the policy proceeds from being claimed by creditors before the beneficiary receives them. The nonforfeiture clause relates to benefits the policyholder can claim if they stop paying premiums, and the accident indemnity clause provides coverage for specific types of accidents rather than addressing beneficiary scenarios in common disaster situations. These provisions do not safeguard the rights of a contingent beneficiary in the event of simultaneous deaths of