The Uniform Simultaneous Death Act settles the question of survivorship when there is not sufficient evidence as to whether the insured or the beneficiary survived, but it does not eliminate the possibility of legal action by a personal representative of the beneficiary claiming that the beneficiary survived the insured. Moreover, it is not effective when it can be proved that the beneficiary, in fact, did survive the insured, even by a moment. In the absence of contrary instructions in the policy, the proceeds would, under such circumstances, go to the beneficiary�s estate.

When there are contingent beneficiaries and the proceeds are held under the interest option or are payable in installments (other than a life income), the primary beneficiary�s short-term survivorship creates no particular problems. The primary beneficiary�s estate would be entitled to one monthly payment at most, and the remainder of the proceeds would go to the contingent beneficiaries. Under all other circumstances, however, the survival of the beneficiary for only a short period is generally considered to be an unfavorable event.

If the proceeds are payable to the primary beneficiary under a life income option, there is likely to be a substantial forfeiture of proceeds even though there are surviving contingent beneficiaries. If there are no refund features in the option, the company�s obligation would be discharged completely by the payment of one monthly installment to the beneficiary�s estate. If the payments are guaranteed for a specified number of years, some forfeiture would still be inevitable�the extent, of course, varying inversely with the length of the period. There would be no forfeiture, other than loss of interest, under the cash refund or installment refund form of life income option.

The problem of short-term survivorship is made clear if the proceeds are payable in a lump sum and the surviving spouse was the primary beneficiary. After probate the proceeds of both estates would pass under the surviving spouse�s will or (if there was no will) to his or her heirs in intestacy. This may be a result the insured did not intend. Even if the results were acceptable, the proceeds would reach the beneficiaries only after going through estate administration and suffering some shrinkage. The cost consequences would be the same had the insured survived the beneficiary and died shortly thereafter unless contingent beneficiaries had been named to take the proceeds in that event.

In an effort to avoid the undesirable consequences of short-term survivorship of the beneficiary (which is a far more common occurrence than simultaneous death), a few companies stipulate that the life insurance policy proceeds will be payable to the beneficiary only if he or she is alive at the time of payment. Other companies use a provision which states that the proceeds will be payable to a designated beneficiary only if the beneficiary survives the insured by a specified period of time, such as 10, 14, or 30 days. Insurers are understandably reluctant to delay payment for a protracted period, but some have been willing to defer payment up to 180 days. Such clauses solve the short-term survival problem very effectively, although no reasonable period would be long enough to cover every case that might arise.

The delayed payment clause has one disadvantage for the policyowner who anticipates a federal estate tax liability. The policyowner would normally want the proceeds of the life insurance policies to qualify for the marital deduction, which is a deduction allowed for all property passing outright to the decedent�s spouse. (For a thorough discussion of the marital deduction, see chapter 11.) The vesting of insurance proceeds, or any property includable in the decedent�s gross estate, can be delayed up to 6 months without jeopardizing their qualification for the marital deduction, provided the spouse survives the period and obtains complete dominion over the proceeds. But if the spouse does not survive the period, the proceeds do not qualify.

There are several solutions to this problem. One is the use of trusts. The insured could also elect payment of the proceeds under an interest option and then designate contingent beneficiaries. If the primary beneficiary is given the unlimited right of withdrawal, the proceeds will qualify for the marital deduction even though the surviving spouse never has an opportunity to exercise the right. If the beneficiary-spouse dies in a common disaster with the insured or dies from any cause shortly after the insured, the proceeds will pass to the contingent beneficiaries. In the event that the beneficiary survives the insured by an extended period, he or she will be permitted under the practices of most companies to elect a liquidation option at contract rates within a specified period, such as one or 2 years, after the insured�s death. The portion of proceeds passing to others at the primary beneficiary�s death will be includable in the primary beneficiary�s gross estate for federal estate tax purposes, but if he or she dies within a specified period after the insured, the law allows a credit for any taxes paid on the same property in the insured�s estate.

Another method of assuring the availability of the marital deduction when there is no evidence of survivorship is through the use of a reverse common disaster clause in the insurance policy. This clause makes the presumption that the beneficiary survives. Obviously, the clause should be used only when it is compatible with the insured�s overall estate plan.

It should be emphasized that a perfectly satisfactory method of dealing with the short-term survivorship hazard is through the use of installment options (except life income options) with contingent beneficiaries. Neither the simultaneous deaths of the insured and the beneficiary nor the beneficiary�s short-term survivorship presents any problems when the proceeds are to be distributed under the installment time or installment amount options or when they are to be held under the interest option with contingent beneficiaries to succeed to the primary beneficiary�s interest. Again, an installment option should be used only if it meets the insured�s distribution objectives.