Disclaiming Life Insurance Benefits: What You Need To Know

Life insurance policies are a legally binding contract between the insured and the insurer, and the beneficiary has the right to disclaim or refuse the proceeds from the policy. This could be due to a variety of reasons, including tax concerns, or the impact of the inheritance on government benefits. The process of disclaiming insurance proceeds varies among insurance companies, but the beneficiary must inform the insurance company of their decision not to receive the proceeds. This can be done through a letter or by filling out a form provided by the insurance company. It is important to note that the primary beneficiary does not have the right to decide who the next beneficiary will be, and the insurance company will treat the situation as if the primary beneficiary had predeceased the insured.

A beneficiary can disclaim their interest

It is important to note that a disclaimer must be unconditional, and the beneficiary cannot redirect the interest that is being disclaimed. If a beneficiary disclaims their interest, the insurance company will treat the situation as if the beneficiary had died before the insured. The beneficiary does not have a say in who gets the money instead; the insurance company will pay the proceeds to the contingent beneficiary.

If you are considering disclaiming your interest in life insurance benefits, it is recommended that you speak to an attorney.

The primary beneficiary doesn't get to choose who the next beneficiary is

When a person with a life insurance policy dies, the death benefit is paid out to the primary beneficiary or beneficiaries. If the primary beneficiary is no longer alive, the benefit goes to the secondary or contingent beneficiary. If there is no secondary beneficiary, the benefit will go to the estate of the deceased and will likely undergo probate.

A primary beneficiary can disclaim their benefit, but they do not get to choose who receives the benefit instead. If a primary beneficiary waives their right to the benefit, the insurance company will treat the situation as if the primary beneficiary had died before the insured person. This means that the benefit will go to the contingent beneficiary.

The process for disclaiming insurance proceeds may vary among insurance companies. A primary beneficiary must contact the insurance company to express their desire not to receive the proceeds. Some companies may require a letter, while others may request that a form be filled out.

It is important to note that a life insurance policy is a contract, and the terms of the contract supersede the terms of a will. Therefore, beneficiaries can only be changed by following the insurance company's procedure, which usually involves filling out a form.

A disclaimer must be unconditional

The beneficiary must make an unconditional refusal to accept the money they are entitled to receive. This is usually done in writing, often in the form of a letter, though some insurance companies may request that the beneficiary fills out their own form. The disclaimer must apply to the whole benefit, though a beneficiary may disclaim one gift in a will while accepting another.

If a beneficiary wants to disclaim their status, they must do so without any direction as to who should receive the benefits instead. The insurance company will treat the circumstances as if the disclaiming beneficiary had died before the insured person. The benefits will then be paid to the contingent beneficiary.

A beneficiary may disclaim by written disclaimer or by conduct

A beneficiary can choose to refuse to accept the proceeds of a life insurance policy. This is known as "disclaiming" the benefit. When a primary beneficiary disclaims the proceeds, they are typically forfeiting their right to decide where the money is redirected. The insurance company will then treat the primary beneficiary as if they had died before the insured and pay the proceeds to the contingent beneficiary.

To be a qualified disclaimer, the disclaimer must be irrevocable and unqualified, in writing, and delivered to the specified person within the time limitations. The disclaimant must not have accepted the interest disclaimed or any of its benefits, and the interest disclaimed must pass to the spouse of the decedent or to a person other than the disclaimant without any direction from the disclaimant.

The specific process for disclaiming insurance proceeds may vary among insurance companies. However, the beneficiary must typically contact the life insurance company and express their desire not to receive the proceeds. Some companies may require a letter, while others may request that the beneficiary fill out a form.

Denied life insurance claims may be valid

It can be frustrating to have your life insurance claim denied, but it's important to know that you may still have options. Here are some reasons why your claim was denied and what you can do about it:

Non-Payment of Premiums

Life insurance policies require regular premium payments to remain active. If you've missed payments and your grace period has expired, your policy may have lapsed and terminated due to non-payment. In such cases, beneficiaries won't receive a death benefit payout. To avoid this, be sure to make your premium payments regularly and on time. If you're having financial difficulties, contact your agent or company representative to discuss alternative options.

Material Misstatements

Providing misleading or false statements on your life insurance application can lead to a denied claim. This includes being untruthful about your age or withholding important medical information like chronic ailments or smoking habits. If the insurance provider discovers these misrepresentations, they may deny the claim. Always be honest on your application, and if you're unsure about how to answer certain questions, consult your agent or representative.

Type of Death Excluded from Coverage

Some life insurance policies have exclusions for deaths that occur during risky activities like piloting a plane or scuba diving. Suicides are also typically excluded from coverage for a period after the policy's issue date, usually for the first two years. It's crucial to understand the specifics of your policy, especially if your work or hobbies involve high-risk activities.

High-Risk Category

People with health challenges, such as diabetes, obesity, or a history of serious illnesses, often fall into a high-risk category and may be denied coverage. Non-health reasons for denial include risky hobbies (e.g., skydiving), a history of DUIs or speeding tickets, dangerous occupations, a criminal record, financial instability, smoking, and failing a drug test. If your application is denied due to incorrect or insufficient information, you have the right to appeal. Work with a financial professional or an independent insurance broker who can guide you through the process and help you find insurers more likely to approve your application.

Beneficiary's Right to Refuse

In some cases, a designated beneficiary may choose to disclaim or refuse the proceeds of a life insurance policy. This doesn't give them the right to decide who should receive the payout instead. If a primary beneficiary waives their rights to the money, the insurance company will treat it as if the beneficiary had predeceased the insured, and the proceeds will go to the contingent beneficiary. The way to disclaim insurance proceeds varies among companies, but the beneficiary must make their desire to refuse the proceeds known to the insurance company.

Frequently asked questions