Can You Dispute a Life Insurance Beneficiary?

When someone passes away and has a life insurance policy in place, the policy terms outline the beneficiaries based on the individual’s wishes. Sometimes, those beneficiaries can seem as though they do not align with the deceased’s current life and relationships. For instance, in the case of someone who divorced and remarried, the policy may name the first spouse as beneficiary. If the policyholder never changed the policy to reflect the divorce and remarriage, the ex-spouse could end up with the benefit. This can cause the current spouse and any children from the second marriage to dispute the beneficiary designation on the policy. If you are facing this situation and are wondering if you should file a dispute, here’s what you need to know.

Common Times People Dispute Life Insurance Beneficiaries

Many people purchase life insurance when they are in the early or middle stages of their adult lives, which is the time when most people are getting married and having children. They typically list their children and spouse as beneficiaries. As they move through life, their life circumstances may change. A beneficiary may become estranged, or the couple may face divorce.

Unless the policyholder of the life insurance plan changes the beneficiary designation officially, the people originally named will remain the beneficiaries through the life of the policy. Even if the policyholder was not on speaking terms with the individual upon his or her death, that beneficiary would still receive the income.

Disputes can also come up when the policyholder makes changes to the policy near the end of life, and the new beneficiaries are unexpected. Sometimes the previous beneficiaries may feel that their loved one was coerced into these changes or was not in sound mind at the time the changes are made. This, too, can spark a desire to dispute the beneficiaries.

Disputing Life Insurance Beneficiaries Creates a Legal Concern

Disputing life insurance beneficiaries requires a legal case presented in court. This is not something the life insurance company can do, even if your claim seems valid. Only the courts have the legal right to make a change to a life insurance policy after the policyholder’s death.

When different individuals claim the right to a benefit, the insurance company will bring an interpleader action to the courts. This places the policy benefits into a court-controlled account while the courts make a final ruling on the beneficiary claims. This is done either through litigation or through a settlement and works best when the parties have a life insurance attorney on board.

This process is not easy to navigate, and a successful dispute requires skilled legal help. However, it is possible, with the right circumstances in place, to successfully prove that the beneficiary designation on the policy does not accurately reflect the person’s wishes at the time of death. Once the courts make the decision, the insurance company will distribute the funds per the court’s orders.

Disputing Life Insurance Beneficiaries is Costly and Time-Consuming

While it is possible to dispute beneficiaries on a life insurance policy, doing so creates a tremendous amount of cost and takes a lot of time. It also forces the rest of the estate to stay open, preventing the probate courts from closing the estate and distributing its assets. While the estate is held in the courts, fees, taxes, and other penalties will continue to build. This can eat away at the overall value of your inheritance, with or without the life insurance benefit.

To avoid this, some families will take the dispute to mediation or arbitration to work out a settlement. This takes less time and costs less money. In this process, the interested parties can figure out a way to split the benefit to avoid a costly and lengthy court battle. This type of settlement can protect the estate from unnecessary expenses

Policyholders Can Help Their Loved Ones Avoid Disputes

Once a life insurance policyholder dies, little can be done to change the beneficiary designation and prevent a dispute. However, policyholders can protect their loved ones and beneficiaries by keeping their policies up-to-date. When life changes happen, changes in the life insurance policy should reflect them. Similarly, if you choose to make a change that you suspect may spark disputes, inform the people around you about it. Taking these steps will prevent disagreements and disputes among the people left behind when someone dies.

Life insurance disputes are not easy to file and win, but they are possible. If you suspect your loved one was taken advantage of before death or failed to make changes intended to cover the right people, reach out to the legal team at Heban Murphree Lewandowski for help understanding your rights and your options.