Q&A
Q:
A:
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How are life insurance
beneficiaries categorized?
In the language of life insurance, a beneficiary is the
recipient of the proceeds of a policy when the named
insured dies. The owner of a life insurance policy has a great deal of
flexibility in naming beneficiaries and can generally name anyone he or
she chooses. However, it is important to understand the different types
of designations and methods of distribution before choosing
your beneficiaries.
Beneficiaries are typically categorized as either primary or contingent.
A primary beneficiary is entitled to the benefits of the policy upon the
death of the insured, but such rights expire if he or she dies before the
insured. A contingent (or secondary) beneficiary is entitled to the policy
benefits if the primary beneficiary has predeceased the insured. One
fairly common arrangement stipulates that, if a primary beneficiary dies
before the insured, then the amount would be payable to the contingent
beneficiary. You may want to have several contingent beneficiaries.
Q:
A:
What is a Rabbi Trust?
This type of trust
was created when
the Internal Revenue Service
(IRS) ruled on the use of a trust
by a temple’s congregation to
provide and protect nonqualified deferred compensation
(NQDC) plan assets for its
Rabbi. Given that NQDCs are
based on a promise—typically in
the form of a legal agreement—of
future payment, a Rabbi Trust is a
way to help assure the employee that
the benefits will be paid when promised.
Using a third party, such as an inde