If a policyholder gets divorced and never updates the beneficiaries on his or her policy, the new spouse and their children may have a question about whether she can dispute the old beneficiary. There are some limited situations where a life insurance beneficiary can be disputed. Generally, life changes such as marriage, divorce, remarriage, the birth of a child or an adoption are the most common reasons for life insurance disputes.
Disputing a Life Insurance Beneficiary
When a life insurance policy is disputed, it becomes a legal issue and a matter for the courts to decide. The life insurance companies can never decide for themselves whether the family member's or challenger's claim is legitimate and the beneficiaries should be changed. Only the courts can make that decision after hearing the evidence. In the end, the insurance companies that issued the policies are going to go by whatever the court decides.
In the majority of cases, it is not easy for those disputing beneficiaries to prove their case in court. An insurance policy is considered a signed contract that is irrefutable. It can be particularly difficult to prove fraud – that the policyholder was coerced into changing a beneficiary by someone who only came into his or her life toward the end.
Not only is disputing a beneficiary legally challenging, but it also can be very costly and time-consuming. When there is an ongoing lawsuit, life insurance companies place the money in a trust held by a state court while the estate stays open and fees, taxes and penalties continue to accrue. Some cases may go to mediation or arbitration. Sometimes it is more financially sound for the two parties to work out an agreement and split the proceeds rather than fight a lengthy court battle over the life insurance beneficiaries and let the payout decrease because of legal fees.
Because challenging beneficiaries is complex, it is best to prevent disputes before they start. Review your life insurance policy on a regular basis. And have your life insurance agent make sure your policies adequately reflect your needs, especially when you have a life change. It is a god idea to have witnesses present when making a change of a beneficiary. For more information, contact our top life insurance lawyers now.