What happens when multiple people claim they each are entitled to life insurance benefits after the death of the insured? How does an insurance company determine who is entitled to the benefits? If you believe you are the rightful beneficiary to a life insurance policy, you will likely need the expertise of a trusted life insurance attorney to help you file an interpleader action. Keep reading to find out about the different types of life insurance disputes.
Types of Life Insurance Disputes
A common beneficiary dispute arises when an ex-spouse remains the named beneficiary on a life insurance policy. This may occur if the policyholder neglects to change the beneficiary after a divorce, or if the ex-spouse’s designation as beneficiary was part of the divorce decree. Depending on the type of policy and the state in which the policy was issued, an ex-spouse may not be entitled to the benefits despite being named beneficiary.
Insurance Policies Governed by State Law
1. Revocation on Divorce statues
Life insurance beneficiary rules after a divorce vary by state. About half of all states maintain a “revocation-on-divorce” statute, which provides that divorce effectively removes an ex-spouse as beneficiary. These statutes may be overridden if:
- the insured re-designates their ex-spouse as beneficiary, or;
- if the divorce decree states that an ex-spouse will remain the beneficiary.
This occurs because life insurance is occasionally used as a form of alimony or as security for any children of the marriage.
We recently got our ex-wife beneficiary client paid on her claim in Texas, a revocation-on-divorce state, when we were able to show that the insured explicitly re-designated her as beneficiary following the entrance of the divorce decree.
2. Community Property States
If no revocation-on-divorce statue exists in your jurisdiction, a current spouse may still recover if the policy was issued in a community property state. A former spouse might also recover under certain circumstances!
In community property states, all property acquired during the marriage is owned equally by both spouses – including life insurance. Under a term life policy, a current spouse is often entitled to one-half of the death benefit because the entire policy is considered community property. Under a whole life policy, the current spouse is entitled to benefits according to the percentage of premiums paid with community funds.
If the policy premiums were paid with community funds with a current or former spouse, there is an argument that he or she is entitled to half of the death benefit even if not named as beneficiary. For example, in a case where the insured named his son as sole beneficiary, we got our client paid half of the death benefit by arguing that she was with the insured for 12 years, lived with him for eight years, and was married to him for the last four years prior to his death, and premiums were paid from their joint account. Keep in mind that while this is a real-life situation, we cannot guarantee the same results in any other matter.
Policies under Federal ERISA Law
If the insured had a policy through their employer, the policy is governed by the federal Employee Retirement and Income Security Act of 1974 (ERISA) which states that the most recent validly-named beneficiary is the rightful claimant. This means that under ERISA, an ex-spouse who remains the designated beneficiary on a policy will receive the proceeds, regardless of the insured’s intent. However, if the insured tried to change their beneficiary designation at any point, other individuals may still have a claim on the policy.
If the insured’s policy originated under their employer and was converted to an individual policy, the rules governing beneficiary disputes vary by jurisdiction. Also, ERISA trumps or supercedes state law, so where there is a conflict ERISA will control. This happened in a case where we were able to get an ex-spouse paid in full on her claim in a revocation-on-divorce state, because ERISA controlled.
If you believe you should be a beneficiary of a policy governed by ERISA, contact a beneficiary attorney at the Boonswang Law Firm to find out if you have a claim.
Life Insurance Fraud
If the insured changed beneficiaries when under duress or when incompetent to do so, or if someone forged their signature on life insurance to change the beneficiary, this sparks a beneficiary dispute.
Competing claims by siblings, step-siblings, or others
Another common beneficiary dispute occurs when the insured has children from multiple marriages, or marries an individual with children from another marriage. Often, an insured parent may intend to make all his or her children beneficiaries, but neglects to add children to the policy as time passes. Do these unnamed children have a claim? Probably! Also, where an insured designated “all children of the insured” rather than naming them each, an adopted child (our client) was equally entitled to the death benefit.
State laws vary, but most states will only allow a validly named beneficiary to collect life insurance proceeds. Someone other than the named beneficiary could have a claim, but only if there is clear evidence of the insured’s intention to name another beneficiary. Evidence of the insured’s intention may exist if, for example, the insured completed and mailed a beneficiary change form, but forgot to sign it. Or, if the insured completed a beneficiary change form and mailed it, and having never received notice that it was completed incorrectly, assumed it was in force. This happened in a recent case where we were able to get his intended beneficiary paid in full.
How do insurance companies handle competing claims?
When different individuals or parties claim the right to receive the same benefits, how does an insurance company determine who is entitled to the proceeds?
If more than one party claims to be the legal beneficiary of a policy, a life insurance company will likely bring an interpleader action. This means that an insurance company will deposit the policy benefits into an account controlled by the court. If multiple parties make claims, you will need a life insurance lawyer because interpleader actions are legal actions that the court decides. Once multiple claims have been made, an insurance company will not likely make a determination about beneficiary disputes.
Interpleader actions can be resolved through the following ways:
- litigation (the parties will make their cases and the court will decide who is the rightful beneficiary), or;
- settlement (the parties agree upon the amounts to which they are each entitled with the help of their attorney).
After the dispute is resolved, the life insurance benefits are distributed according to what the court or the parties decided.
How to respond to life insurance disputes
The best way to avoid a beneficiary dispute is to ensure that you and your loved ones regularly review your life insurance policy and your beneficiary designations. You should keep in touch with your issuing agent and establish a plan to periodically review your policy. Additionally, you should be sure to review your policies after important events, such as marriages, the birth of a child, divorces, or job changes.
If you are currently experiencing a beneficiary dispute, you will need a trusted life insurance lawyer. Beneficiary disputes are almost always a legal matter so it is important that you receive legal assistance as soon as possible from a lawyer for life insurance claims. Top-rated life insurance attorney Chad Boonswang and his associates have more than 25 years of experience achieving successful resolutions in beneficiary disputes. Contact the Boonswang Law Firm to learn about your potential for recovery.