PSI Ohio Insurance Practice Exam

In what order do beneficiaries receive proceeds from a life insurance policy?

1. Random order

2. By age

3. Succession of beneficiaries

4. By relationship to the insured

The correct answer is: Succession of beneficiaries

Beneficiaries receive proceeds from a life insurance policy in a specific succession, which reflects the priorities set forth in the policyholder's designation. Typically, when the primary beneficiary is unable to claim the benefits—due to reasons such as death or incapacity—the proceeds are passed on to contingent beneficiaries or secondary beneficiaries as designated by the policyholder. This framework for succession ensures that the intended recipients receive the intended benefits, minimizing disputes and confusion regarding the distribution. In life insurance policies, the order in which beneficiaries are listed often dictates how benefits are distributed. For example, if a policyholder names multiple beneficiaries, the proceeds usually go to the primary beneficiaries first, and if they cannot be reached, then to the next in line, as identified by the policyholder. This hierarchical system is crucial for providing clarity and ensures that the insured's wishes are followed as closely as possible.