Many couples use life insurance as an estate planning tool. In essence, they purchase policies so if one of them dies before the other, the surviving partner will be provided for financially. This is often an act of love as much as it is a financial strategy.
Indeed, even in cases where a couple has one or more children, it is most common for the policyholder to name his or her partner as the sole beneficiary under the policy. This makes perfect sense as an adult beneficiary is best suited to make financial decisions for the whole family.
One thing that couples often fail to consider when setting up their life insurance policies, however, is that couples tend to do most things together. They travel together, play sports together, and spend most of their time away from work together. Consequently, couples often die together.
This can be a problem when it comes to life insurance. If each partner has only named the other as a beneficiary and both die at the same time, who receives the policy payout? Well, most of the time, that decision is made according to the inheritance laws in effect in the state where the couple lived. For example, if a couple was killed together in a car accident but their life insurance policies only named each other as beneficiaries, the proceeds of their life insurance policies would typically go to each insured’s respective next of kin.
But what happens if the next of kin is the very last person the policyholder wants to get ahold of his money? This article explores one such case.
A storybook romance
Dan and Cheryl met each other after both had gone through a failed first marriage. Both of them were in their late 40s, both loved traveling to remote locations, and each made the other laugh more than anyone else in the world. In short, they fell in love quickly. Though neither wanted to remarry again, they decided to merge their lives almost immediately.
One of the things Dan and Cheryl had in common is that they each had one child in their late teens. In fact, Cheryl’s daughter Emma, who was 17 when they met, moved in with the couple and quickly became like a daughter to Dan. In fact, when Emma entered college the next year, Dan offered to allow her to stay at home to save some money. The three of them had a very happy home life together during the whole time Emma was attending the local university.
Dan’s son Mark, on the other hand, was addicted to heroin. Over the years, he had stolen money from Dan, crashed his car, and gone to jail several times. After years of trying unsuccessfully to get him clean, Dan decided to use tough love and kick him out of his life unless and until he could stop doing drugs.
At the time they met, Dan had been a computer engineer with a large software producer for over 20 years. As part of his benefits package, Dan received a life insurance policy worth $300,000. Shortly after he started dating Cheryl, he changed his policy to name her as his sole beneficiary. Dan did not name an alternate or contingent beneficiary in his policy.
In doing other estate planning however, Dan did have a lawyer draw up a will. In meetings with the lawyer, he talked about how he loved Emma like his own daughter and would much rather she benefit from his estate than his own son. Indeed, while Dan’s will gave all of his assets to Cheryl, the document named Emma as a back up beneficiary in the event Cheryl predeceased him.
A sad end for the couple
After Dan and Cheryl had been together for several years, they decided to take their dream trip to Southeast Asia. A few days into their trip, a monsoon hit their oceanside resort. The infrastructure of their hotel was not the best and unfortunately, the building crashed around them as the storm raged. Their bodies were found on the beach a few days later amidst a ton of debris.
Since no one knew their precise time of death, Dan and Cheryl’s death certificates stated that they died on the exact same date at the exact same time. When the news reached home, all of their family and friends were devastated.
A short time later, Dan’s attorney contacted Emma regarding her status as Dan’s sole surviving beneficiary under the will. While he hadn’t seen Dan’s life insurance policy in some time, he presumed Dan had named Emma as a contingent beneficiary. He urged Emma to make a claim under the policy, which she did.
Unfortunately, Dan had failed to name any backup beneficiaries in his will. Thus, the insurance company initially denied Emma’s claim. Dan’s lawyer suggested she retain the services of his colleague, who specialized in contesting life insurance claim denials. In the meantime, the insurance company filed a lawsuit asking the court to decide who it should pay as between Emma and Dan’s son Mark.
At trial, Emma’s lawyer presented evidence of Dan’s will and his conversations with his estate lawyer about how he preferred that Emma benefit from his estate over his son. Mark, who was given notice of the lawsuit and the trial, failed to make an appearance or otherwise argue that he should be the beneficiary under the policy.
Ultimately, the court awarded the policy benefits to Emma but it took a great deal of time and energy to reach that result. If Dan had only named Emma as his contingent beneficiary within the policy documents, the whole dispute could have been avoided.Nonetheless, the case is a good reminder that a lawyer specializing in the denial of life insurance claims can be the differentiator between getting the benefits your loved one intended for you and not. If you have received a recent life insurance claim denial, call us today. We’re here to help.