All the following statements concerning third-party beneficiaries of a life insurance contract are correct EXCEPT:

• A. They may disclaim any benefits under the contract.
• B. They may acquire certain rights that are enforceable against the company.
• C. Their rights can be negated by any defenses available to the insurer against the owner.
• D. They need to know of the contract at its inception.

Answer: (A)

The essential idea is that a third-party beneficiary in a life insurance contract has enforceable rights against the insurer when they are properly designated, and those rights are shaped by the policy’s terms and the insurer’s defenses against the owner.

A third-party beneficiary cannot simply disclaim benefits under the contract. Once someone is named to receive the death benefit, their rights arise from the policy and are intended to be paid, subject to the contract’s conditions. Disclaiming these rights is not a standard or supported feature of third-party beneficiary status.

By contrast, the beneficiary may have enforceable rights against the company, such as the right to receive the death benefit when the insured dies. Those rights are direct claims on the insurer, separate from the insured’s or owner’s interests.

Their rights can be negated by defenses available to the insurer against the owner. If the insurer has a valid defense—like misstatement of age, policy contestability, or nonpayment of premiums—those defenses can defeat or reduce the claim to the proceeds, and the beneficiary’s rights are not immune from those same defenses.

And they typically need to be identified in the contract at inception. The designation of a beneficiary and the recognition of their status are part of the contract from the outset, which establishes their enforceable interest in the proceeds.

So, the statement about disclaiming benefits is the one that isn’t correct.