Minnesota Life Insurance License Practice Exam

What is the primary benefit of having an irrevocable beneficiary?

1. Lower insurance premiums

2. Protection from creditors

3. Guaranteed payment to the beneficiary

4. Prohibition of policy changes without consent

The correct answer is: Prohibition of policy changes without consent

The primary benefit of having an irrevocable beneficiary is that it establishes a level of security regarding the policy's benefits. When a beneficiary is designated as irrevocable, the policy owner cannot change the beneficiary or take any actions that affect the benefits without the consent of that beneficiary. This means that the irrevocable beneficiary holds a vested right to the policy proceeds and is effectively guaranteed to receive the benefits upon the insured's death. This characteristic is particularly important in situations where the policy owner wishes to ensure that the benefits will be directed to a specific person without the risk of alterations that could arise from future decisions. It provides stability and assurance, knowing that the intended beneficiary will receive the proceeds as planned, regardless of any changes the policy owner might want to make later. Other options, while they might represent important concepts in insurance, do not capture the unique characteristics and advantages associated with irrevocable beneficiaries. For instance, the idea of lower insurance premiums and protection from creditors pertains more to the type of policy or overall financial strategy rather than the specific benefit of an irrevocable designation. Similarly, guaranteed payment to the beneficiary depends on the policy's terms as a whole and does not specifically highlight the aspect of irrevocability.