Whenever there is only one beneficiary in a beneficiary classification (primary, first contingent, and so forth), the interest of any beneficiary who predeceases the insured passes in the manner and according to the rules described in the preceding pages, unless the contract provides otherwise. Whenever there is more than one beneficiary in a beneficiary classification, however, a question arises as to the disposition of the interest of any beneficiary who dies before his or her interest materializes. The problem has frequently arisen with class designations, such as "my children," but it is equally relevant to multiple specific designations.

To pinpoint the problem, assume that A, the insured, names A�s three children, B, C, and D, as primary beneficiaries of A�s insurance, share and share alike, without designating any contingent beneficiaries and without specifying what the disposition should be of the share of any child who fails to survive him. Assume further that D predeceases A, leaving three children, E, F, and G. Who is entitled to D�s share? (See figure 12-1.)

A policy provision on this point is controlling, but in the absence of a pertinent policy provision, D�s interest might conceivably be disposed of in one of three ways. It might pass to A�s estate, on the theory that where there are multiple designations, the interest of each beneficiary is severable and is contingent on the beneficiary�s surviving the insured. The share might pass to B and C, on the theory that the designation of multiple beneficiaries creates a form of undivided interest, analogous to a joint tenancy, with right of survivorship. Finally, the share might pass to D�s children, E, F, and G, on the theory that a primary beneficiary has a vested interest in the proceeds that cannot be defeated by his or her failure to survive the insured.

In the litigation that has developed around this question there has been no support for the view that a deceased beneficiary�s interest should revert to the insured�s estate, despite the fact that this would have been the outcome had the deceased beneficiary been the sole primary beneficiary. The majority of the decisions have followed the rule that the surviving beneficiaries of the classification to which the deceased beneficiary belonged are entitled to take the deceased beneficiary�s share. In the example, therefore, B and C would be entitled to the full amount of proceeds. This doctrine is known as the New York Rule, since it was first espoused by the New York courts. From a practical standpoint, much can be said in favor of the rule. Most of the cases involve children, which means that if the deceased child�s share were to revert to the insured�s estate, it would ultimately be distributed to the surviving children�the other beneficiaries�reduced by its share of administration expenses and bequests to other persons, including the widow.

A substantial minority of the courts have followed the Connecticut Rule, which holds that the heirs of the deceased beneficiary are entitled to his or her share. In the above example, E, F, and G, therefore, would receive the proceeds to which D would have been entitled had D survived A. Each of D�s children would receive one-ninth of the total proceeds; B and C would receive one-third each. This rule is in conflict with the prevailing view of a beneficiary�s interest in a life insurance policy, but it reflects the desire of the jurists involved to carry out what they believe to be the insured�s wishes.

In anticipation of this problem, many companies have incorporated a provision in their policies that�in the absence of contrary instructions from the insured�will control the disposition of the interest of any beneficiary who dies before becoming entitled to payment of his or her share of proceeds. This provision, commonly known as the succession-in-interest clause, is applicable to both primary and contingent beneficiaries and to beneficiaries designated irrevocably or revocably. A typical clause might appear as follows:

Note that this clause applies not only to the situations in which either a primary or a contingent beneficiary fails to survive the insured, but also to cases in which a contingent beneficiary fails to survive a primary beneficiary. The latter is important when proceeds are being paid out on an installment basis. If the proceeds are to be paid in a lump sum, specifying in the beneficiary designation that the proceeds will be paid only to those beneficiaries who survive the insured will solve the problem, provided this solution is in accord with the insured�s wishes.

The disposition of deceased beneficiaries� interest envisioned by the succession-in-interest clause does not represent the desires of all policyowners. In designating their children as beneficiaries, many insureds want the share of a deceased beneficiary to go to the beneficiary�s children, the insured�s grandchildren. This can be accomplished by directing that the proceeds be distributed per stirpes, a Latin expression meaning "by the trunk." For example, in designating her husband as primary beneficiary and her children as contingent beneficiaries, an insured could use the following wording: "John Doe, husband of the insured, if he survives the insured; otherwise in equal shares to the surviving children of the insured, and to the surviving children of any deceased children of the insured, per stirpes." The expression "per stirpes" means that the deceased person�s issue or lineal descendants take the share (of an estate or of the insurance proceeds) that the deceased would have taken had he or she survived. It is used in wills and trusts, as well as in insurance policies. The children represent the parents, and grandchildren represent the children, and so on down the "trunk." The words "by representation" are sometimes used in lieu of "per stirpes." The Connecticut Rule, referred to earlier, embodies the per stirpes concept.

Sometimes, however, an insured wants the children of a deceased beneficiary to share equally with the surviving members of the original beneficiary group. In the example used earlier, A might have wanted D�s children to share equally with B and C, each taking one-fifth of the proceeds. A could have achieved this objective by specifying that the proceeds should go "in equal shares to such of B, C, and D, children of the insured, as may survive the insured, and to the surviving children of such said children as may be deceased, per capita."

In all these matters, the insurance company accedes to the wishes of the insured, requiring only that his or her desires be clearly expressed in the designation.