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Life insurance beneficiary designations allow the policyholder to decide who should receive a death benefit when he or she passes away. That doesn’t prevent someone from contesting life insurance beneficiary payouts, however. There are different reasons why someone may choose to dispute the beneficiary of a life insurance policy. If you believe you have a valid claim to contest someone’s beneficiary status or your own position as a beneficiary is being challenged, it’s important to understand how disputes can affect life insurance payouts.

Life insurance is one part of a complete estate plan, which is something a financial advisor can help you create and update. 

Is Contesting a Life Insurance Beneficiary Legal?

Generally speaking, yes. If someone else believes that the policyholder’s choice of beneficiary should not be honored then they can raise a claim to dispute it. This, however, can be a lengthy and time-consuming process that involves hiring an attorney and contesting the beneficiary in court. Only a court decision can change who can benefit from a life insurance policy; the insurer is required to abide by the terms of the original contract.

So who can contest a life insurance beneficiary?

In simple terms, anyone who believes they have a valid claim to a life insurance policy can contest the original policyholder’s choice of beneficiary. Some examples of when a life insurance beneficiary may be contested include:

  • A current spouse who objects to a former spouse being named as the life insurance policy’s beneficiary
  • Adult children who believe they should be named beneficiaries to a parent’s policy
  • Anyone who believes the original beneficiary designation was made under duress or undue influence

It’s not uncommon for disputes over life insurance beneficiaries to arise after someone makes changes to their policy (or fails to) after a major life change. So for example, if you get divorced and remarry you’d have to update your policy to make your new spouse the beneficiary. Otherwise, your former spouse would still be entitled to the policy’s death benefit when you pass away.

Can a Life Insurance Beneficiary Be Removed?

As long as the policyholder is alive, they can remove or add beneficiaries to their policy. Doing so typically requires filling out the appropriate paperwork with the insurance company.

Again, the reasons for removing a beneficiary from a life insurance policy may tie in to life changes. A change in marital status, the birth or death of a child or a falling out with a family member could all prompt a change of life insurance beneficiary.

Before changing a beneficiary, it’s important to consider the financial and legal implications. If you’re divorced, for example, but you’re required to keep your former spouse as the beneficiary as part of your divorce decree attempting to make changes could be problematic. In that scenario, it could make more sense to simply purchase a new policy and name someone else as a beneficiary.

Once the policyholder passes away, no changes can be made to the policy or its beneficiaries by the insurance company. A court order would be necessary to remove a beneficiary and replace them with someone else.

How Contesting Life Insurance Beneficiary Works

Parties to a life insurance beneficiary contestContesting life insurance beneficiaries is a legal process but whether your dispute is subject to state or federal law can depend on the policy. If, for example, the life insurance policy was issued by an employer and is covered by ERISA guidelines then federal law would apply when disputing a beneficiary. A lawsuit would need to be filed in the probate court that’s overseeing the disposition of the deceased person’s estate.

Once the lawsuit is filed, the insurance company may choose to hold off on distributing death benefits to the named beneficiary until the case is resolved.

The person bringing the lawsuit to contest a beneficiary would need to demonstrate to the court why their claim should be upheld. The type of proof or evidence required to do so may depend on the nature of the claim.

For example, say you have two siblings and all three of you were named as co-beneficiaries on your mother’s life insurance policy. But just before she passed away, she changed the designation to exclude you and one of your siblings, leaving the entire death benefit to the third sibling. If you believe this change was made under duress you’d need to be able to prove that your sibling coerced your mother into making the changes.

If you’re able to prove to the court that the change of beneficiaries shouldn’t have happened, then the court can order the life insurance company to uphold the original designations. But if you’re unable to show evidence that supports your claim, the court may rule in favor of your sibling and allow them to remain as the sole beneficiary.

Disputes over life insurance beneficiaries can be costly, as they typically require the expertise of one or more attorneys. They can also take time to process so it may be months or even years before a death benefit can be paid out, depending on the nature of the dispute claim.

Preventing a Contest of a Life Insurance Beneficiary

If you have a life insurance policy, there are some things you can do to minimize the possibility of someone challenging your choice of beneficiary.

First, consider carefully who you want to benefit from your policy. This is especially important if you have minor children. In that case, you could either name your children as beneficiaries along with a custodian who can manage the death benefit on their behalf until they reach adulthood or set up a trust. You could then name the trust as beneficiary to the policy, with your children serving as beneficiaries of the trust itself.

Next, consider reviewing your policy at least once a year to make sure your beneficiary designations still match up with your wishes. If not, you can get in touch with your insurance company to find out what you need to do to change your beneficiaries. Once you change them, let the old beneficiaries know that they’ve been removed from the policy.

When changing beneficiaries, consider talking to a financial advisor or an attorney first. If you’re divorced, for instance, it’s important to make sure changing beneficiaries won’t lead to any conflicts over your estate down the line if you decide to remarry or have more children. And a financial advisor can help you evaluate whether your current policy is sufficient in terms of what you’ll leave behind to your beneficiaries.

The Bottom Line

Pacific Islander familyContesting life insurance beneficiary designations can happen for a number of reasons. If you’re the beneficiary that’s being contested, you may need an estate planning attorney to help guide you through the legal process. And if you have a life insurance policy, it’s important to know what can trigger disputes over beneficiaries after you’re gone. Of course, there are alternatives to life insurance as ways to benefit a survivor. It might, for example, make sense for you to create a testamentary trust.

Tips for Estate Planning

  • Consider talking to a financial advisor about purchasing life insurance if you don’t have a policy yet. And if you don’t have a financial advisor, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. It takes just a few minutes to get your personalized recommendations online. If you’re ready, get started now.
  • Knowing how much life insurance you need, or your beneficiary should have, is important. Use SmartAsset’s free life insurance calculator to get a good estimate of what the right amount for you is.

Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/Motortion, ©iStock.com/neicebird

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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