Many of the life insurance cases we handle involve disputes over who should receive the benefits. Whether someone has contested a designation in your favor, or you feel you have the basis for a contest, we can help. We have over a dozen years of experience in both defending and contesting life insurance beneficiary designations.  It is not easy to contest a life insurance beneficiary.  But often hundreds of thousands of life insurance proceeds are at stake. The death benefit may may substantially larger than the assets in an estate. 

Beneficiary disputes can be complex. In order to understand how these disputes work, it’s important to understand how a beneficiary is designated, what can lead to a dispute, how designations can be challenged, and the interpleader process.

The importance of beneficiary designations

Life insurance is considered a “non-testamentary asset”, because the proceeds are not controlled by a will. Instead, the life insurance policy is a contract between the person who purchases the policy and the insurance company. Unlike most insurance, the policy isn’t for the person who purchases it - it’s for the benefit of a third party, like a spouse or child.

Who receives the policy benefits isn’t determined by a will. The owner of the policy names who will benefit from the policy, which is usually defined in the insurance contract - not a will. The person named (or designated) in the policy is called the beneficiary. This beneficiary will receive the life insurance payout upon the insured's death.

Contest of a life insurance beneficiary designation

A designation may fail or be successfully challenged for various reasons.  These may include:

• Failure to provide the designation in a beneficiary change form that satisfies the insurance company

• Failure to update the beneficiary after a major life event 

• The insurance company may contend the designation is unclear

• A designation in favor of an ex spouse may not be valid

• A designation must be made with someone who possesses sufficient mental capacity to make the change.  This is particularly common with a last-minute beneficiary change. 

• A designation may be made by someone who is subject to undue influence or duress by the person who benefits from the designation

• The beneficiary may have caused the death of the insured

• The designation may be in violation of a court order

• A designation may be in violation of a court decree

• The designation may attempt to transfer community property assets

There may also be disputes when it appears the insured attempted to make a designation, but was not able to complete the act.  The insured may have instructed an agent to change the beneficiary, but the attempt may have been rejected. This may implicate the doctrine of substantial compliance. 

We often handle cases in which the designated beneficiary hires us because someone else  has claimed they should receive the life insurance benefits.   This may require an aggressive court fight to determine the rightful beneficiary. 

If you are involved in a potential beneficiary dispute, it is important to act quickly to contact a lawyer experienced in handling life insurance beneficiary interpleader disputes.

Frequently Asked Questions: Life Insurance Beneficiary Disputes

Q: What is a beneficiary dispute?

A: A beneficiary dispute is a disagreement between individuals over who should receive the proceeds from a life insurance policy. This can occur if there is not a clear beneficiary designation or if there are multiple individuals claiming to be the rightful beneficiary.

Q: Is it necessary to contact a life insurance lawyer when disputing a life insurance beneficiary designation?

A: Yes, it is highly recommended to contact an experienced lawyer when disputing a life insurance beneficiary designation. A knowledgeable attorney can provide guidance on the validity of the claim, assist in gathering appropriate evidence, and represent the disputing party through negotiations or potential litigation with the insurance company or other parties involved.

Q: How do I contest a life insurance beneficiary designation?

A: To contest a life insurance beneficiary designation, you will need to show evidence that the policyholder was under duress, coercion, or undue influence when they made the beneficiary designation or that the beneficiary designation was fraudulent.

Q: Can I change the beneficiary on my life insurance policy?

A: Yes, you have the right to change your beneficiary at any time. This can usually be done by filling out a beneficiary form provided by your life insurance company.

Q: What is undue influence in a life insurance beneficiary change?

A: Undue influence is when an individual uses their power or authority to manipulate another person's decisions, such as a last-minute beneficiary change. This can be grounds for contesting a beneficiary designation if there is evidence of duress or coercion.

Q: What if I want to contest a beneficiary designation on behalf of a loved one who has passed away?

A: You will need to provide proof of your relationship and standing as a rightful claimant to the life insurance proceeds. This can include a copy of the deceased's will or other legal documentation.

Q: What is the federal law regarding life insurance beneficiary disputes?

A: Federal law requires that life insurance companies pay out the proceeds to the named beneficiaries, unless there is valid evidence to support a claim for contesting a beneficiary designation.

Q: How can I ensure my life insurance policy's beneficiary designation is valid?

A: It is important to carefully consider and review your beneficiary designation in light of any major life changes or relationships. It is also recommended to consult with an attorney or financial advisor to ensure that your beneficiary designation complies with legal requirements and meets your individual needs.

Q: Can life insurance companies change the beneficiary on a policy without the policy holder's consent?

A: No, life insurance companies cannot change the beneficiary on a policy without the policy holder's consent. The policy holder must submit a beneficiary change request in writing to the life insurance company. If the change is not authorized by the policy holder, it can be contested by an attorney.

Q: What role does federal law play in life insurance beneficiary disputes?

A: Federal law may come into play in life insurance beneficiary disputes, mainly when the policy is governed by the Employee Retirement Income Security Act (ERISA). ERISA mandates that life insurance companies pay benefits to the beneficiary named in the policy, regardless of state laws. Other policy controlled by federal law include FEGLI, SGLI and VGLI.

Q: Can a policy owner's family member contest the beneficiary named on a life insurance policy?

A: Yes, a policy owner's family member can contest the beneficiary named on a life insurance policy if they believe the beneficiary designation is a result of undue influence, fraud, duress, or other legitimate concerns. It is essential to consult a life insurance attorney to examine the facts and determine if there are valid grounds for contesting the beneficiary designation.

Q: Can I change the beneficiary on my life insurance policy?

A: Yes, you can change the beneficiary on your life insurance policy at any time. You will need to fill out a new beneficiary designation form and submit it to your insurance company.

Q: What happens if there is no named beneficiary on a life insurance policy?

A: If there is no named beneficiary on a life insurance policy, the proceeds will go to the estate of the policyholder.

Q: What is a beneficiary form?

A: A beneficiary form is a document that a policyholder fills out when they want to designate the person or people who will receive the proceeds of their life insurance policy after they pass away.  But there are times, particularly with employer-sponsored plans, that a designation may changed through an online portal. 

Consultations are free and confidential.

This information is provided by Texas Life Insurance Lawyer J. Michael Young.

Mr. Young is a recognized authority in handling life insurance disputes. He has spoken to groups of estate planning lawyers on how to recognize and evaluate life insurance beneficiary disputes.

You can read more about this topic in an article he has published on the Dallas Bar Association website: Recognizing Life Insurance Beneficiary Disputes.