New York Child Abuse Identification and Reporting Practice Exam

Under what circumstance does a policy owner lose the right to change the beneficiary?

1. If the policy is assigned to someone else

2. If the policyholder names an irrevocable beneficiary

3. If the policy has lapsed

4. If the benefits have been paid out

The correct answer is: If the policyholder names an irrevocable beneficiary

When a policyholder names an irrevocable beneficiary, they relinquish the right to change that beneficiary without their consent. An irrevocable beneficiary has a vested interest in the policy, meaning they are entitled to the benefits upon the policyholder's death. Because of this vested interest, the policyholder cannot alter the beneficiary designation unless they get permission from the irrevocable beneficiary. This ensures that the wishes of the irrevocable beneficiary are respected and that they have a degree of security and assurance regarding the benefits tied to the policy. In contrast, the other options involve different scenarios where the right to change a beneficiary may not be affected in the same way. Assigning a policy to someone else typically does not prevent the policyholder from changing beneficiaries, as they retain control until the policy is entirely transferred. If a policy lapses, the right to change beneficiaries may still exist depending on the recovery of the policy. Finally, once benefits are paid out, the original beneficiary designation is no longer relevant, but it does not directly impact the ability to change the beneficiary while the policy is active. Thus, the naming of an irrevocable beneficiary is unique in that it permanently restricts the policyholder’s ability to make changes.