ERISA Beneficiary Designation: What You Need to Know if Your Life Insurance Claim Is Disputed

Beneficiary designation determines who receives the death benefit when the insured dies. Although distributing the proceeds should be a straightforward process, very often it is not. Individual life insurance policies are often subject to beneficiary disputes which are settled according to state law. Group life insurance policies, however, are not usually governed by state laws but by a federal law called ERISA (Employment Retirement Income Security Act) and have different rules when it comes to who collects the death benefit. 

In this blog post our attorneys explain everything you need to know about ERISA beneficiary designation rules – from a spouse’s rights to who collects the money after a divorce – and what to do if your ERISA claim is disputed. If you are already involved in a beneficiary dispute, do not delay seeking legal assistance to learn your options. Recovering the death benefit after it has been given to the wrong person may be difficult and expensive. 

Call us at (888) 510-2212 for a free, no-obligation case evaluation.

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Who Can Be a Beneficiary on a Life Insurance Policy Under ERISA?

Under ERISA, a beneficiary is a person or legal entity the insured employee names to receive all or a portion of the death benefit of a life insurance policy obtained through work in case of death.  Anyone can be named a beneficiary of a life insurance policy controlled by ERISA but most people opt to designate their spouse, children, siblings or other family members.

Rules: ERISA Beneficiary Designation Preempts State Law 

Usually, ERISA preempts state laws which means that it will trump any conflicting state laws. Issues arise when state domestic relations, probate law and ERISA intersect. ERISA favors strict adherence to the plan documents, therefore, the life insurance payout goes to the person designated as the employee’s beneficiary on the policy. Here are a few examples that show how ERISA beneficiary designation rules apply in various circumstances.

ERISA Spousal Rights After Divorce: Automatic Revocation Laws 

Many states have enacted laws that automatically nullify or override a life insurance beneficiary designation after a divorce. ERISA, on the other hand, mandates that the person named by the insured employee on the beneficiary designation form remains a valid beneficiary even after a divorce. Since ERISA preempts any conflicting state law, it preempts the state automatic nullification after divorce law. It means that a divorced spouse can maintain their former spouse as a beneficiary on their ERISA life insurance plan without fearing that the former spouse will be denied benefits. 

erisa spousal rights

ERISA Law Regarding Spouses: Waiver of Rights in Divorce

An issue arises when a waiver of benefits in a divorce decree is in conflict with the beneficiary designation on file with an ERISA-governed life insurance plan. The law states that insurance companies may rely only on the life insurance beneficiary designation forms in determining the proper recipient of benefits. For example, if John and Marry are divorced and Mary waived her rights to John’s life insurance policy in a divorce decree, Mary may still collect John’s ERISA-governed life insurance benefit if John had not removed her as a beneficiary. Thus, insurance companies may ignore a divorce decree and pay out the benefit in accordance with the beneficiary designation forms on file. 

ERISA Life Insurance Beneficiary Designation in Community Property States

If a couple lives in a community property state they may be aware of a state community property law that allows a nonparticipant spouse to transfer an interest in their spouse’s life insurance policy. In other words, half of the life insurance policy that is considered community property may go to the spouse regardless of the beneficiary designation. Such laws conflict with ERISA’s statutory provisions that allow only a person designated on the beneficiary form to collect the life insurance benefit. Since ERISA preempts conflicting state laws, community property laws will not affect the designation on an ERISA life insurance policy. 

erisa life insurance beneficiary rights

What to Do if Your ERISA Claim Is Disputed

Many ERISA beneficiary designations are contested when life-changing events such as a divorce happen. The main responsibility to avoid disputes among beneficiaries falls on the insured. Insured participants should keep their beneficiary designation up to date to make sure that regardless of the circumstances of death, the life insurance proceeds of their employer-controlled plan go to the person they intended in the first place.

In cases where there are competing claims to life insurance benefits, an insurer may choose to initiate a lawsuit called an interpleader action, in a federal or state court. In an interpleader action, the insurer will commence a lawsuit alleging that it does not know to which claimant the benefit should be delivered. It seeks the court’s direction as to which claimant is the proper beneficiary entitled to the contested benefit. The claimants will each present their case and the court will issue its decision.

If your ERISA beneficiary designation is challenged by a competing claimant you should immediately seek legal advice. ERISA is a complex law. Contact us at (888) 510-2212 to speak with one of our ERISA lawyers if you suspect the decision was made in error and you are rightfully entitled to the death benefit. 

At our law firm we have years of experience handling denied life insurance claims under ERISA and can help you understand your life insurance beneficiary rights. We offer support during all stages of the process from filing a claim to appeals and lawsuits. Here are a few cases where our attorneys were successful in recovering the life insurance proceeds of our clients: 

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