Contesting Beneficiary Designation on a Life Insurance Policy

Life insurance is essentially a contract between the insured policyholder and the insurance company. Life insurance payouts are governed by policy terms and state or federal laws. Law surrounding estate planning, family, divorce, child support, trusts, and wills may all come into play after a person’s death.

The benefits are usually paid to the beneficiary designated in the policy. However, it is not uncommon for someone other than the named beneficiary to have a valid claim to the policy proceeds. That means that a life insurance beneficiary designation can be contested.

If you find yourself in a situation where your designation as the beneficiary is being contested or would like to dispute the designation on your loved one’s policy, our attorneys are here to help. Call (888) 510-2212 for a free case evaluation.

When Do People Usually Dispute Life Insurance Beneficiaries?

The most common examples are disputes involving current or ex-spouses, children from different marriages, the insured’s lack of capacity, undue influence or duress, or improper beneficiary change.

State and Federal Laws

At our insurance law firm, the first step we take in analyzing a beneficiary dispute is determining whether state or federal law applies. This can be complex, but generally, state law applies unless the insured obtained the policy through an employer. If the insurance was obtained as a benefit of employment, it is likely that it will be a policy governed by a federal law commonly referred to as ERISA (Employee Retirement Income Security Act of 1974).

ERISA generally preempts state laws, particularly regarding claims for policy benefits. It trumps state law recognizing a community property interest of a spouse in the policy, as well as provisions in many state statutes that effectively void beneficiary designations in favor of an ex-spouse. ERISA favors strict adherence to plan documents to aid with predictability and uniformity for the benefit of the plan administrator. You can read more about this law applies in our article about ERISA life insurance beneficiary designation rules.

Here are a few cases involving beneficiary disputes under ERISA laws that our attorneys have successfully handled:

challenging a life insurance beneficiary designation

The Ex-Spouse as Beneficiary

In many states, a divorce operates to revoke a prior beneficiary designation in favor of an ex-spouse. Problems could occur in this case. Should the ex-spouse predecease the insured, the life insurance policy might be left without a beneficiary. In such cases, life insurance proceeds could become part of the estate and be divided after going through probate, or distributed to the insured’s living relatives according to intestacy laws.

If you find yourself in a situation where there might be a competing claim from an ex-spouse, call Kadetskaya Law Firm for a free consultation. We will protect your rights to the life insurance proceeds to which you and your children may be entitled.

Learn more about an ex-spouse’s rights to life insurance death benefits and see how our life insurance attorneys recovered the benefits an ex-spouse was wrongfully denied.

The Spouse’s Community Property Claim

If the insured lived in a community property state, assets earned or acquired by either the insured or the surviving spouse during marriage are presumed to be community property. This applies to marriages dissolved by death, as well as by divorce.

Under community property state laws, a surviving spouse may have a claim for constructive fraud when an insurance policy was purchased with community funds for the benefit of a person outside the marriage. Read more about the spouse’s rights to life insurance benefits.

Forged or Invalid Due to Lack of Capacity and Undue Influence

Beneficiary designations can be challenged on the ground that the insured either lacked the mental capacity to make the designation or was unduly influenced to do so. Such last-minute beneficiary changes happen when the insured is gravely ill, in the hospital or nursing home, or of diminished mental capacity. 

Most of the time they occur a day or two before the insured’s death. Usually, a caretaker or a person who has access to the insured’s life insurance information contacts the insurance company that holds the policy and asks for change-of-beneficiary forms. Then they assist the insured in signing the forms and send them to the insurance company.

Last-minute beneficiary changes may or may not be valid.

It is valid if it is executed by the insured who has the mental capacity to understand the nature of the documents and the consequences of beneficiary change and if it is performed out of free will without undue influence or duress. In addition, many life insurance companies have several requirements in regard to beneficiary changes.

If a last-minute beneficiary change occurred, the old beneficiary and the new beneficiary will most likely submit competing claims for the same life insurance benefits.

The prior beneficiary may contest a last-minute change by presenting evidence of mental and physical incapacity, undue influence, duress or fraud. 

Contesting a beneficiary change, however, is often the right way of handling a life insurance claim denial if fraud or duress is involved. Many people who contest beneficiaries based on mental incapacity or duress do so because they believe that the insured’s wishes should be carried out.

contesting beneficiary designation

Improper Beneficiary Change/ Doctrine of Substantial Compliance

Sometimes, the insured tries to change a beneficiary designation but fails to do so in the manner outlined in the policy. 

For example, some companies require that two witnesses be present at the time a change-of-beneficiary form is signed. Other companies require that the completed form arrive at the insurance company’s office before the insured’s death. To be valid, a change of beneficiary must comply with the policy provisions.

The insurance company will review all the documents and check if the change was made in compliance with the policy provisions. If the change is in compliance with the insurance company’s rules for changing the beneficiary, the insurer may pay the claim to the new beneficiary.

The insurance company may reject the change and ask the insured to make the designation on the form and in the manner required by the company. Many state courts will find that a beneficiary change was effective if the insured “substantially complied” with the policy provisions. Federal courts apply a similar standard in ERISA cases.

Can a Beneficiary Be Changed After Death?

A beneficiary cannot be changed after the death of an insured. When the insured dies, the interest in the life insurance proceeds immediately transfers to the primary beneficiary named on the policy and only that designated person has the right to collect the proceeds. Sometimes the beneficiary change is completed prior to the insured’s death but is received by the insurance company after the death occurred. In such cases, the insurance company will follow its own policy provisions on beneficiary change. 

Who Can Contest Beneficiary Designation?

Usually, life insurance beneficiary disputes arise in the context of a family feud, divorce, marriage, separation, or the insured’s illness. Anyone with a valid legal claim can dispute the existing beneficiary on the policy.

In the majority of cases, those disputing the existing beneficiary designation have a claim for benefits that is based either on a contract or divorce decree or on allegations of undue influence, duress, insured’s mistake or mental incapacity. 

Beneficiary disputes are complex and require legal counsel on both sides. Our firm has successfully handled many beneficiary contests. We are aware of the legal issues involved in such cases and have the experience necessary to resolve them.

contesting life insurance beneficiary

Does a Will Override a Life Insurance Beneficiary?

Some people erroneously think that a will can override a life insurance policy beneficiary designation. Life insurance is a legally binding document between an insurance company and the insured person where the beneficiary is a third party with an interest in the policy. The insured’s will is a separate document that is not usually taken into consideration when life insurance benefit is paid out. The life insurance company will pay benefits to the person named as the beneficiary of the policy. 

Read our blog post about life insurance beneficiary vs. will to learn more about how to handle such situations.

What Is the Insurance Company’s Role in Beneficiary Contests?

Insurance companies are inclined to allow disputing parties to reach an agreement and will hold the funds until an amicable resolution is achieved. If, however, the parties cannot agree to settle, the insurer will file an interpleader (a lawsuit) and will deposit the life insurance proceeds into a court’s escrow account.

In these cases, the insurer is not withholding the life insurance death benefits. It simply cannot determine who should get the payout, so in order to avoid double liability, it allows the court to name the rightful recipient of the benefits. When this happens, the parties involved in a contest will start preparing the case for litigating in court.

The insurance company, acting as a neutral stakeholder, will withdraw from the case. Often, the insurer’s legal costs are taken out of the life insurance amount. This is one of the reasons people choose to resolve beneficiary contests outside of court, especially if the amount of benefits is not large enough to justify this expense.

Challenging a Life Insurance Beneficiary Designation Can Be Costly and Time-Consuming

Litigation can be very expensive and lengthy. At our law firm, we strive to get the most favorable result for our clients in the fastest and least expensive way engaging in negotiations and alternative dispute resolutions before commencing litigation. Our life insurance attorneys will help you determine the best way to a successful beneficiary contest.

What Should I Do if I Am Involved in a Beneficiary Contest?

If you find yourself in the middle of a beneficiary contest, you need to have an experienced life insurance attorney on your side. Our beneficiary contest lawyers will listen to you carefully, evaluate your case, outline possible venues for handling the dispute, and design a legal strategy that will work to protect your rights. Learn more about your rights as a beneficiary of a life insurance policy.

Not only do we have the experience needed to negotiate complex beneficiary disputes, but we also work hard at protecting your rights and making sure you are satisfied with the outcome. In addition, we will act on your behalf so you do not have to involve yourself in a stressful dispute.

We will keep you informed of any developments of your case.

Here’s how our attorneys have won cases involving beneficiary contests:

disputed insurance claim

What Fee Do Attorneys Charge for Handling Beneficiary Disputes?

Different law firms have different fee structures when it comes to handling beneficiary disputes. Some firms will bill you on a per-hour basis and some will offer a contingent fee arrangement.

Our life insurance lawyers work on a contingent fee basis. It means that we will charge a percentage of your payout only after you get paid. If you do not recover the benefits, there will be no legal fee.

This fee structure enables us to commence representation only in cases where we believe the recovery is possible. If you are going through a beneficiary dispute and need advice, please call us at (888) 510-2212 for a free consultation.

by Tatiana Kadetskaya

by Tatiana Kadetskaya

Attorney Tatiana Kadetskaya has over 10 years of experience in life insurance law representing beneficiaries and policy owners. She is best known for successfully collecting denied and delayed claims and settling complex beneficiary disputes and interpleader lawsuits.

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