Individuals buy life insurance for a variety of reasons. The major one is because they want to protect their loved ones financially. Many people pay into their life insurance policy for several years. When doing so they have the peace of mind knowing that their loved ones will be taken care of in the event of the death of the insured. Sometimes this is a false sense of security. There can be disputes that arise over the payout of the life insurance claim.
What is an Interpleader?
When an insured passes away the beneficiaries of the insurance policy make a claim with the applicable insurance company. Once the insurance company has done their review of the claim they then make the payment to the beneficiaries. There are times when the insurance company may receive more than one claim on the insurance policy. The insurance company does not know to whom the claim is to be paid. What they will do is place the value of the policy in the hands of the courts. Then the courts will decide who is to receive the money. The insurance company no longer has any involvement in the payout of the claim. This is the most effective way for the insurance company to deal with this problem. Otherwise they would be spending a great deal of money on trying to settle the claim themselves.
The Life Insurance Interpleader Process
As soon as the insurance company becomes aware of a dispute over the claim, they will start interpleader actions in the court. Legal actions cost money. The insurance company will ask the courts to compensate them for their legal costs out of the proceeds of the life insurance policy in question. Those involved in the dispute now have to make their claims of being the true recipient of the life insurance proceeds to the courts.
Why Would There Be More Than One Claim?
Those who buy life insurance believe the process of leaving the money to their loved ones is a simple process. It is just a matter of naming them as the beneficiary on the policy. This is the proper procedure. The problem arises when someone contests who the beneficiary is.
The amount of money paid out on life insurance claims is substantial. The insurance companies have to be absolutely sure that they are paying the right beneficiary. If there is any doubt on the insurance company's part they would prefer to let the courts determine who is the right payee.
Common Interpleader Cases
Court Orders for Life Insurance
Sometimes individuals are compelled to buy life insurance. This often happens in divorce cases. The courts order a spouse to buy life insurance to protect their children. This is common when the spouse is responsible for paying support. The life insurance protects the children financially if the paying spouse dies. In some cases the insured may have had to cover children from different marriages. This means that the life insurance policy was meant for all the children. The children each put claims in against the life insurance policy. Now the insurance company has received more than one claim. They now have to go into the interpleader process.
The cause of death can sometimes be an issue. The insured may have been murdered. There could be suspicion that the beneficiary had a part in this. In this case the insurance company will opt for an interpleader.
Forgetting to Change the Beneficiary
Married couples will often take out an insurance policy to protect their spouse financially. These policies can be in place for many years. There are times where the couple end up divorcing and then getting remarried. On occasion an insured may forget to change their beneficiary who was their first spouse. Then the insured dies. There is now a problem between the first spouse and the second. Although in some states there are laws in place for this. Where upon divorce there is an automatic revocation.
Not Naming a Beneficiary
Some real battles can surface in the family of the deceased when the insured did not name a beneficiary. The insurance company will have to refer this to the life insurance interpleader.
Individuals who are involved in a life insurance interpleader case should seek out legal advice as this is matter that will be before the courts.
Life Insurance Lawyer and Interpleader
A life insurance attorney can step in and get the interpleader resolved quickly.