16. An insured named her four children as beneficiaries in equal shares to her $60,000 life insurance policy. Her eldest child has two children and dies prior to the insured. The other three children do not have children of their own. If the insured designated the beneficiaries per capita, how will the proceeds be distributed?
Answer: A
The three surviving children will each receive $20,000
In this scenario, the proceeds of the $60,000 life insurance policy will be divided equally among the three surviving children, resulting in each receiving $20,000.
A) The three surviving children will each receive $20,000
This option is correct because, under a per capita designation, the benefits are divided among the surviving beneficiaries only. Since one child predeceased the insured, their share of the policy would not be distributed to their children; instead, the total amount would be split among the three remaining children.
B) The three surviving children will each receive $15,000. The remaining $15,000 will be paid to the insured's estate
This option is incorrect. Under a per capita designation, the deceased child's share does not go to their estate or children; it is simply excluded from the distribution. Thus, there is no remaining amount to be allocated to the estate.
C) The three surviving children will each receive $15,000
This option is also incorrect. Since the total policy value of $60,000 would be divided among the three surviving children, each would receive $20,000, not $15,000.
D) The three surviving children will each receive $15,000. The insured's grandchildren will each receive $7,500
This choice is incorrect as well. The grandchildren do not receive any portion of the life insurance proceeds because the designation was per capita, meaning only the surviving siblings share the benefits, excluding the deceased child's descendants.
Conclusion
The correct answer is A, as it accurately reflects the distribution of the life insurance proceeds under a per capita designation, with the amount solely going to the surviving siblings. All other options misinterpret the rules of distribution, either by incorrectly allocating funds to the estate or the grandchildren, which is not applicable in this case.