Question

Union Bank loaned $200,000 to Wagner. Union required Wagner to obtain a life insurance policy naming Union as beneficiary. While the loan was outstanding, Wagner stopped paying the premiums on the policy. Union paid the premiums, adding the amounts to Wagner's loan. Wagner died and the insurance company refused to pay the policy proceeds to Union. Union may: a. Recover the policy proceeds because it is a creditor beneficiary. b. Recover the policy proceeds because it is a donee beneficiary. c. Not recover the policy proceeds because it is not in privity of contract with the insurance company. d. Not recover the policy proceeds because it is only an incidental beneficiary.

Answer 1

Answer:

A) Recover the policy proceeds because it is a creditor beneficiary.

Explanation:

A creditor beneficiary is not part of the life insurance policy contract (only Wagner and the insurance company engaged in the contract), but it has been assigned as the beneficiary of the policy in the event that the insured (Wagner) dies. This is usually done in order for the bank loan to be paid entirely by the insurance proceeds, so the estate of the deceased is not affected by an unpaid loan. Therefore, the insurance company has the legal duty to pay the proceeds to Union Bank.