Report No. 82
5.12. Settlement agreement-successor payee.-
A special procedure available in the U.S.A. under "settlement agreement" should also be noted. The applicant for a policy will ordinarily name a contingent or successor payee under a settlement agreement, whose rights correspond to, but are ordinarily considerably more extensive than, those of the contingent or successor beneficiary in a one-sum designation. The rights of the contingent beneficiary in a one-sum designation are determined as of the moment the insured dies. If, at that time, the first-named or primary beneficiary is living, the rights of the contingent or successor beneficiary are automatically extinguished. The primary beneficiary takes all. If the primary beneficiary dies immediately thereafter, payment will be made to the personal represenatives1 of the primary beneficiary.
Under a settlement agreement, on the other hand, the contingent payee may also be made a successor payee. His rights are not necessarily extinguished by the death of the insured while the primary beneficiary is living. Often, by the provisions of the settlement agreement, such a successor payee is entitled to take any unpaid amounts or instalments remaining unpaid at the death of the primary beneficiary or payee. Thus, if the primary beneficiary lives to receive all the payments provided for (or to withdraw the total proceeds if the rights of withdrawal is granted), the successor payee's rights will be terminated. However, if the primary beneficiary does not exhaust the proceeds during her lifetime, the successor payee or payees "succeed" (as their name suggests), to any funds remaining at her death.2
1. Greider & Beadles Law and the Life Insurance Contract, (1968), p. 151.
2. Greider & Beadles Law and the Life Insurance Contract, (1968), p. 151.