Contesting a Life Insurance Beneficiary Designation

Life insurance is essentially a contract between the insured policyholder and the insurance company. Life insurance payout works by being governed by policy terms and state or federal laws. Laws surrounding contracts, 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 disputed 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.

Can a Beneficiary Be Contested?

A person with information about why the current beneficiary designation may be invalid can file a beneficiary contest to prevent an insurance company from paying the benefit. There are many reasons why a designated person may not be entitled to a death benefit. Beneficiary disputes usually resolve through a legal process that requires the help of a life insurance lawyer.

Our law firm strives 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 lawyers will help you determine the best way to a successful beneficiary contest.

When Might Beneficiaries Be Contested?

A person who believes that the current beneficiary designation is invalid and who has an interest in the life insurance benefit may contest it. In some cases, issues may arise because the policyholder did not follow the proper procedure to name a beneficiary or failed to update the beneficiary information after major life events. Below are some of the most common situations where beneficiary contests occur:

The Claimant is an Ex-Spouse

One of the most frequent situations in which a life insurance beneficiary can be contested is when the policyholder divorces but forgets or fails to update the beneficiary.

In many states, a divorce operates to revoke a prior beneficiary designation in favor of an ex-spouse, which can lead to problems. Ex-spouses with court orders/divorce decrees obligating the insured to keep the policy beneficiary designation in their favor may have a valid claim to the benefits. 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.

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.

contesting life insurance beneficiary

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 the marriage are presumed to be community property unless there is a separate prenuptial/postnuptial agreement. In the absence of a special agreement, community property life insurance policies are considered marital assets. 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, in which case they can contest the beneficiary designation.

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 contested 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, is in the hospital or nursing home, or lacks 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 to ensure the validity of the beneficiary change.

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 challenge 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 dispute a beneficiary designation based on mental incapacity or duress do so because they believe the insured’s wishes should be carried out.

Improper Beneficiary Change

Sometimes, the insured tries to change a beneficiary designation but fails to do so in the manner outlined in the policy. Even if the policyholder’s intention to change beneficiaries was clear, it might not have an impact when it comes to distributing the life insurance proceeds.

For example, some companies require that two witnesses be present at the time a change-of-beneficiary form is signed. Others ask that the completed form arrive at their office before the insured’s death. To be valid, a change of beneficiary must comply with the policy provisions. The insurance company will determine compliance after reviewing all the documents submitted by both parties.

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. Otherwise, they 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.

If you suspect that the beneficiary change happened after the insured’s death, you should contact a life insurance attorney to determine whether you have the right to challenge the beneficiary designation.

life insurance beneficiary contesting

State and Federal Laws

At our life insurance law firm, the first step in analyzing a beneficiary dispute is determining whether state or federal laws apply. Generally, state law applies unless the insured was an active or retired military servicemember (SGLI, VGLI,), obtained the policy through an employer or worked as a federal government employee (FEGLI). These cases are complex and require an experienced life insurance attorney to review the facts surrounding the beneficiary change and the laws governing the policy.

For example, 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). However, many employers offer non-ERISA policies that have a provision about what state law governs this particular policy.

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 how this law applies in our article about ERISA life insurance beneficiary designation rules.

Here are a few denied ERISA claims involving beneficiary disputes that our attorneys have successfully handled:

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 the life insurance benefit is paid out. The insurance company will pay the proceeds 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 these situations are handled.

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

What Happens When a Life Insurance Beneficiary is Contested?

When a life insurance beneficiary designation is contested, it may resolve in one of several ways:

  • The insurance company itself can make a decision regarding the validity of the beneficiary designation and pay accordingly. 
  • The disputing parties may reach an agreement to divide the death benefit amicably and sign a release with the insurance company to avoid future litigation. 
  • The insurance company may file an interpleader and deposit the life insurance benefit into a court’s escrow account. 
  • One of the disputing parties may file a lawsuit and ask the court to decide who should receive the payout.

Insurance companies are inclined to allow disputing parties to reach an agreement and will hold the funds until an amicable resolution is achieved. If the parties cannot agree to settle, the insurer will file an interpleader (a lawsuit) and 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 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.

how to contest life insurance beneficiary

How to Prevent a Contest of a Life Insurance Beneficiary?

There is nothing a beneficiary can do to avoid a beneficiary contest after the insured dies. Only the policyholder, during their lifetime, can minimize the possibility of someone challenging their choice of the beneficiary by:

  • Reviewing the policy after a major life change to make sure the beneficiary designations are updated accordingly;
  • Making sure changing beneficiaries will not lead to any conflicts in the future in case of remarrying, having more children, or adopting;
  • Following the insurance company’s procedures when making updates. Mistakes can delay or prevent attempted beneficiary changes;
  • Letting previous beneficiaries know that they have been removed from the policy to avoid disagreements.

What to Do if You Are 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 dispute 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 in your case.

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.

Here are a few other cases involving beneficiary contests that our attorneys have won:

If you are going through a beneficiary dispute and need advice, please call us at (888) 510-2212 for a free consultation.

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About the author

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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