Difficulty: Medium

Average Score: 50%

Joe has named Jane as irrevocable beneficiary of his life insurance. In this situation

Rationale

Joe must have Jane's permission to borrow the loan value of the policy.

When a policyholder names an irrevocable beneficiary, they lose the right to change that beneficiary or make certain decisions regarding the policy without the beneficiary's consent. This includes borrowing against the policy's cash value, which requires the irrevocable beneficiary's approval.

A (Joe does not need Jane's permission to borrow the loan value of the policy.) YOUR ANSWER

This statement is incorrect because naming Jane as an irrevocable beneficiary means that Joe cannot make alterations to the policy, including borrowing against its cash value, without her consent.

B (Joe may remove Jane as beneficiary.) YOUR ANSWER

This choice is also incorrect. An irrevocable beneficiary cannot be removed or changed by the policyholder without the beneficiary's consent. This protects the rights of the irrevocable beneficiary.

C (Jane can borrow the loan value of the policy without Joe's permission.) YOUR ANSWER

This option misrepresents the situation. While Jane has rights as an irrevocable beneficiary, she cannot unilaterally borrow against the policy; Joe's consent is also necessary for any loans taken against the policy.

D (Joe must have Jane's permission to borrow the loan value of the policy.) CORRECT

This statement is accurate as it reflects the nature of irrevocable beneficiary arrangements. Joe's inability to borrow against the policy without Jane's permission protects her vested interest in the policy's value.

Conclusion

In life insurance policies with an irrevocable beneficiary, the policyholder must seek the beneficiary's consent for significant actions like borrowing against the policy's cash value. Joe's naming of Jane as an irrevocable beneficiary effectively restricts his control over the policy, ensuring that Jane's rights and interests are safeguarded. This legal framework is vital for protecting beneficiaries in financial planning and insurance arrangements.

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