In general, a beneficiary of a life insurance policy does not have to share the death benefits with siblings unless the policy specifically designates that the benefits are to be split among siblings or if there is a court order indicating a split.
When a policyholder designates a beneficiary, such as a spouse or child, that beneficiary is entitled to receive the death benefit. The beneficiary can use the money as they see fit and is not required to split life insurance with siblings or other family members.
However, there are situations where siblings may challenge the distribution of life insurance benefits. For example, if the policyholder did not update their beneficiary designation after a major life event, such as a divorce or remarriage, the former spouse or new spouse and children may dispute the distribution of the benefits.
In some cases, the policyholder may verbally express a wish for the beneficiary to share life insurance with the siblings. While the beneficiary may have a moral obligation to do what the policyholder asked of her, she does not have a legal obligation to do so. In such cases, the insurance company may file an interpleader complaint in court and the court will determine who is entitled to the benefits. This can be a complex and costly process, and it is important for beneficiaries to work with an experienced life insurance lawyer to ensure that they understand their rights and options.
Who Can Be Named as a Life Insurance Beneficiary?
A life insurance policyholder can name any individual, organization, or entity as a beneficiary, subject to certain restrictions. The following are examples of individuals or entities that can be named as a life insurance beneficiary:
- Spouse or partner: Many policyholders choose to name their spouse or partner as the primary beneficiary of their life insurance policy.
- Children: Policyholders can name their children as beneficiaries of their life insurance policy. They can name one child or multiple children as beneficiaries.
- Other family members: Policyholders can name other family members, such as parents, siblings, or grandchildren, as beneficiaries of their life insurance policy.
- Friends: Policyholders can name friends as beneficiaries of their life insurance policy.
- Charities: Policyholders can name charitable organizations or nonprofits as beneficiaries of their life insurance policy.
- Trusts: Policyholders can name a trust as the beneficiary of their life insurance policy, which can help to manage the distribution of funds after their death.
- Estates: Policyholders can name their estate as the beneficiary of their life insurance policy, which can help to ensure that any outstanding debts or taxes are paid before funds are distributed to beneficiaries.
Do Laws Require a Beneficiary to Split Life Insurance With Siblings?
Generally, beneficiaries are not required to split life insurance with siblings after they receive a life insurance payout. However, in cases where there is a legal agreement or court order indicating that the benefits should be split with siblings, the insurance company will take them into account when reviewing the claim.
When a policyholder names a beneficiary on a life insurance policy, that beneficiary is entitled to the full death benefit. The beneficiary has full discretion as to how to use the money and is not required to share it with other family members, including siblings unless there are specific legal provisions indicating otherwise. Beneficiary disputes may arise if one or more siblings feel that they are entitled to a share of the life insurance proceeds. In such cases, they may challenge the distribution of the benefits, which can lead to litigation.
Does a Will Override a Life Insurance Beneficiary?
In general, a will does not override a life insurance beneficiary designation. When a policyholder names a beneficiary on a life insurance policy, that beneficiary is entitled to receive the death benefit, regardless of what is specified in the policyholder’s will. Life insurance policies are considered contractual agreements between the policyholder and the insurance company, and the beneficiary designation is part of that agreement. The beneficiary designation takes precedence over any conflicting instructions in the policyholder’s will.
However, there are some situations where a will may impact the distribution of life insurance proceeds. For example, if there is a beneficiary dispute, the insured’s wishes may be ascertained by looking at the will. In cases where there is no beneficiary designation, the death benefit may go to the insured’s estate. Alternatively, the estate itself may be named as a beneficiary and the death benefit will be distributed according to the instructions in the insured’s will.
Read more on our article about life insurance beneficiaries vs. will.
Contingent Beneficiaries
A contingent beneficiary is someone who is designated to receive the proceeds of a life insurance policy if the primary beneficiary is unable or unwilling to receive them. The contingent beneficiary is named as a backup or secondary beneficiary in case the primary beneficiary predeceases the policyholder, disclaims the benefits, or is otherwise unable to receive them.
Contingent beneficiaries are an important aspect of life insurance planning because they help to ensure that the proceeds of a policy are distributed in accordance with the policyholder’s wishes. Without a contingent beneficiary, the proceeds may become part of the policyholder’s estate and be subject to probate proceedings, which can delay distribution and increase costs.
When Do You Have to Share the Proceeds of Life Insurance?
Generally speaking, you are not required to share the proceeds of a life insurance policy with anyone unless there is a legal agreement or court order that requires you to do so.
When you purchase a life insurance policy and name a beneficiary, that beneficiary is entitled to receive the death benefit upon your passing. The beneficiary can use the money as they see fit and is not required to share it with other family members or heirs, including siblings or other relatives.
However, there are some situations where you may be required to share the proceeds of a life insurance policy. For example:
- If you live in a community property state, your spouse may be entitled to a share of the proceeds, even if they are not named as a beneficiary.
- If you owe debts or taxes at the time of your passing, creditors may have a claim to a portion of the proceeds.
- If you are divorced or have a court order for child support or alimony payments, your ex-spouse or children may be entitled to a portion of the proceeds.
If you name your estate as the beneficiary on your life insurance policy, the proceeds may become part of your estate and be subject to probate proceedings, which can delay distribution and increase costs. In such cases, the proceeds may be used to pay any outstanding debts or taxes before being distributed to your heirs.
If the is an agreement between a beneficiary and a sibling that specifies that the beneficiary must split the life insurance payout with siblings, it may be enforced after the insurance company pays the death benefit to the beneficiary. In such cases, siblings may sue the beneficiary to recover their share under the contract. The insurance company must pay only to the beneficiary on file and cannot be sued if the beneficiary breaches the post-distribution contract with siblings.
What to Do if Your Beneficiary Designation Is Contested
If your beneficiary designation is contested, it can lead to a lengthy and costly legal dispute that can delay the distribution of the life insurance proceeds. It is best to seek legal advice at the beginning of the beneficiary dispute. The attorney can help you understand your legal rights and options and can assist you in resolving the dispute. If you are facing such a situation, call us at (888) 510-2212 for a free consultation.
