Life Insurance: When Family Can Contest Beneficiaries

Life insurance is a legally binding contract that designates a person or people who should receive financial benefits after the policyholder's death. The primary beneficiary is first in line to get the death benefit, and the contingent beneficiary acts as a backup if the primary beneficiary has passed away. However, if someone believes there is a problem with the beneficiary, they can contest the decision. Anyone with a valid legal claim can contest a life insurance policy's beneficiary after the death of the insured. This includes former spouses, children, or other family members who believe they are the rightful beneficiary. Contesting a life insurance beneficiary is challenging, costly, and time-consuming, and insurance companies cannot remove a named beneficiary. Only a court has the power to overturn a life insurance beneficiary.

Major life changes

Remarriage

If a policyholder gets divorced and remarried but fails to update the beneficiary from their former spouse to their current spouse, the current spouse may contest the beneficiary designation. This is because the current spouse may feel they are entitled to the death benefit, especially if the policyholder intended to remove the former spouse as the beneficiary.

Major Life Events

If the policyholder goes through significant life events, such as divorce, remarriage, or estrangement, and does not update their life insurance beneficiary accordingly, their family members may contest the beneficiary after the policyholder's death. For example, if an ex-spouse is named as the beneficiary, the family may believe that the policyholder forgot to update their policy after the divorce.

Mental Incapacity

If the policyholder didn't have the mental capacity to change beneficiaries but was pressured to do so, their family may contest the beneficiary. For instance, friends or family may suspect that an unwell policyholder did not fully understand what they were doing when removing a beneficiary or that they were coerced by a new romantic partner or caregiver.

Non-Compliance with Insurance Company Requirements

If the policyholder attempts to change the beneficiary but does not follow the insurance company's requirements, the change may not be effective. For example, a beneficiary change form may need to be witnessed or notarized, and some insurance companies may not accept other written documents, such as a last will and testament, to make a beneficiary change. In such cases, the family may contest the beneficiary, arguing that the policyholder's intentions were not properly carried out.

Illness or unsound mind

In these situations, it is important to seek legal advice and gather evidence to support the claim. This could include medical records, witness statements, or any other documentation that suggests the policyholder was not of sound mind when they made the change.

It is worth noting that disputing a life insurance beneficiary can be costly and time-consuming, and there is no guarantee of success. The dispute will likely end up in court, and it may be difficult to prove that the policyholder's decision was not what they truly wanted. Therefore, it is important to carefully consider the potential consequences before deciding to contest a life insurance beneficiary.

Divorce and remarriage

Impact of Divorce:

• Reviewing and Updating Policies: Divorce is a crucial time to review and update life insurance policies. It is essential to assess the financial implications, especially if there are children involved.
• Legal and Personal Implications: Consult a legal or financial advisor before making any changes to your policy, as removing your spouse as a beneficiary can have legal and personal consequences.
• Court-Ordered Requirements: If you are required to pay alimony or child support, the divorce decree may mandate that you keep your ex-spouse as a beneficiary or purchase a new policy that pays out to them in the event of your death.
• Type of Policy: The type of life insurance policy you have can determine its treatment during divorce proceedings. Term life insurance is often considered a separate asset, while permanent life insurance policies with cash value may be considered joint assets to be divided.
• Protecting Alimony and Child Support: If you have primary custody of your children and receive alimony or child support, maintaining a life insurance policy on your ex-spouse can ensure continued financial support for your children in the event of their death.
• Impact on Children: If you have minor children, it is generally not advisable to name them directly as beneficiaries. Instead, consider appointing a custodian or creating a trust to manage the death benefit on their behalf.

Impact of Remarriage:

• Updating Beneficiaries: When you remarry, it is crucial to update your life insurance beneficiary. Failure to do so may result in your current spouse contesting the policy if the beneficiary is still your former spouse.
• Witnessing and Documenting Changes: To avoid disputes, consider having witnesses when making changes to your policy and clearly documenting your wishes.
• Impact on Existing Policies: Remarriage may also impact any existing life insurance policies you have in place. Review and update your policies to reflect your new marital status and ensure your current spouse is included as a beneficiary if desired.

In conclusion, divorce and remarriage are significant life changes that require careful consideration of life insurance policies and beneficiaries. It is essential to seek legal and financial advice, update policies and beneficiaries accordingly, and take steps to protect the financial interests of all parties involved, especially any dependent children.

Lack of mental capacity

Life insurance is a contract between the insured policyholder and the insurance company. When the policyholder passes away, 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 proceeds. This means that a life insurance beneficiary designation can be contested.

A beneficiary designation can be contested on the ground that the insured lacked the mental capacity to make the designation. This often happens when the insured is critically ill, in a nursing home, or in their later years, suffering from an illness such as dementia. It is more likely to be considered valid if the insured was not of sound mind and was unduly influenced or coerced into making the change.

Last-minute beneficiary changes are often viewed with suspicion. They typically occur a day or two before the insured's death, when the insured is in a vulnerable state. A caregiver or someone with access to the insured's information may request change-of-beneficiary forms from the insurance company and assist the insured in signing them.

To contest a beneficiary designation on the grounds of lack of mental capacity, you will need to present evidence to support your claim. This may include medical records, witness statements, or other documents that demonstrate the insured's lack of capacity to make informed decisions.

It is important to note that contesting a life insurance beneficiary requires a legal court process, and it is recommended to seek the help of an experienced attorney.

Forgery or undue influence

Forgery occurs when someone forges a beneficiary designation or other relevant documents to change the intended recipient of the insurance payout. This is a form of fraud, which can also take the form of misrepresentation, where false information or misrepresentations are made during the application or designation process.

Undue influence, meanwhile, occurs when the policyholder is manipulated or coerced into changing their beneficiaries against their true wishes. This can include situations where the policyholder is mentally incompetent, such as suffering from dementia or other cognitive decline, or is physically or mentally incapacitated. In these cases, the policyholder may be pressured, threatened, or bribed into making changes to their policy.

If you suspect forgery or undue influence, it is important to act quickly. While you are deciding what to do, the insurance company may move forward with an interpleader, which will bring the case to court. At that point, you will have no choice but to legally defend your stance. There is also a risk that the insurer will pay the claim to the other beneficiary, making it much more difficult to recover the funds if you file a lawsuit after the payment has been made.

To contest a life insurance beneficiary on the grounds of forgery or undue influence, you should:

• Gather evidence: Collect all relevant documents, including original beneficiary designations, any communication related to the disputed changes, and any evidence of fraud or undue influence. This may include emails, letters, or witness statements.
• Consult an attorney: Seek legal counsel from an experienced attorney who has handled beneficiary disputes and life insurance law. They can help you evaluate the strength of your case and guide you through the legal process.
• Report fraud: If you have strong evidence of fraud, report it to the police or other appropriate authorities. Be sure to obtain a police report or case number.
• Initiate legal proceedings: Your attorney can help you initiate legal proceedings to challenge the fraudulent or undue beneficiary designation, which may involve filing a lawsuit against the party responsible.
• Mediation or settlement: In some cases, mediation or negotiation may be possible to reach a settlement without a full court trial. Your attorney can advise you on the best approach.

Frequently asked questions