Can You Dispute a Life Insurance Beneficiary?

Managing Disputes Over Life Insurance Beneficiaries

When a person passes away with a life insurance policy in place, the beneficiaries are determined based on the policyholder’s specified wishes in the policy terms. However, these beneficiary designations can sometimes be misaligned with the deceased’s current life circumstances, leading to potential disputes.

This is particularly common in situations such as divorce and remarriage, where a policyholder may not have updated the policy to reflect these life changes. For example, if a divorced individual fails to update their policy, their ex-spouse might remain the beneficiary, inadvertently excluding the current spouse and any children from a subsequent marriage. This scenario often leads to disputes over the beneficiary designation.

Common Scenarios Leading to Disputes

Life insurance is frequently purchased during the early or middle stages of adulthood when many are marrying and starting families. Initial beneficiaries typically include spouses and children. As life progresses, circumstances can change—beneficiaries might become estranged, or the policyholder may undergo a significant life change.

If the policyholder does not formally update the beneficiary designation, the original beneficiaries remain entitled to the policy benefits upon the policyholder’s death, even if the relationships had soured.

Disputes can also arise when policyholders amend their beneficiary designations late in life, especially if the new beneficiaries are unexpected or seem out of character. Previous beneficiaries might suspect coercion or question the mental capacity of the policyholder at the time of the change, prompting them to challenge the new designations.

The Legal Process of Disputing Beneficiaries

Disputing a life insurance beneficiary designation is a nuanced legal process that requires a formal court proceeding. It is not a matter that can be directly settled through the insurance company. This process is triggered when there are questions or disagreements about the rightful beneficiary as per the deceased’s life insurance policy. Here’s a breakdown of how this process typically unfolds:

• Initiating the Dispute: To challenge a life insurance beneficiary designation, the disputing party must initiate legal action in court. This involves filing a lawsuit that questions the validity of the current beneficiary designation, based on various possible grounds such as the policyholder’s last wishes or changes in familial circumstances.
• Interpleader Action by Insurance Companies: In response to a dispute, insurance companies commonly file an interpleader action. This legal move effectively transfers the responsibility of deciding the rightful beneficiary to the court system. The insurance company deposits the policy benefits into a court-controlled account until the dispute is resolved.
• Court Resolution: The court then steps in to determine who the rightful beneficiary is. This determination is made through one of two ways:
  • Litigation: The parties involved present their arguments and evidence in court, after which a judge makes a decision based on the merits of the case.
  • Settlement: Alternatively, the parties may reach a settlement outside of court, often through mediation or arbitration, which is then ratified by the court.
• Costs and Delays: Challenging a beneficiary designation is both costly and time-consuming. It involves legal fees, court costs, and potentially long delays. This process can also hold up the settlement of the deceased’s estate, leading to additional expenses such as ongoing taxes and maintenance costs, which can diminish the inheritance’s overall value.
• Mediation or Arbitration as Alternatives: To avoid the high costs and long duration of court battles, some families opt for mediation or arbitration. These alternative dispute resolution methods allow for a more amicable and cost-effective way to reach a settlement, often preserving relationships and the estate’s value.

Understanding the complexities and potential consequences of disputing a life insurance beneficiary is crucial. Those considering such a dispute should seek professional legal guidance to navigate this challenging process effectively.

Preventive Measures by Policyholders

The best way to avoid beneficiary disputes is for policyholders to keep their life insurance policies updated, reflecting changes in their life circumstances. Clear communication about any significant changes, especially those that might be contentious, can also help prevent misunderstandings and disputes after the policyholder’s death.

Disputes over life insurance beneficiaries can be challenging but resolvable with the right legal guidance and strategy.

If you find yourself in such a situation, consider seeking advice from the legal team at Heban, Murphree & Lewandowski, LLC to understand your rights and explore your options. Send us a message to get started!