Can a Life Insurance Policy Override a Will?
Yes, a life insurance policy can—and typically does—override a will. This is a common point of confusion, especially for families dealing with the loss of a loved one and navigating the complex web of estate planning and probate. But make no mistake: life insurance is a contract, and like most binding contracts, it controls what happens to the money, regardless of what's written in a will.
When someone purchases a life insurance policy, they name one or more beneficiaries to receive the policy’s death benefit. Upon the insured’s death, the insurance company pays the proceeds directly to those named beneficiaries. This payment bypasses the probate process and is not governed by the instructions in the will—no matter how recent or detailed the will might be.
Why the Beneficiary Designation Controls
Life insurance policies are legal contracts between the policyholder and the insurance company. When the insured dies, the insurer is obligated to pay the policy proceeds to the person or persons listed as beneficiaries—not to the estate unless no beneficiary is named. The beneficiary designation on the policy form is legally binding and supersedes any conflicting instructions in a last will and testament.
For example, if a will states that all assets should be divided equally among three children, but the life insurance policy names only one child as the sole beneficiary, the insurance company will pay that one child. The remaining children may feel wronged, but legally, they have no right to the proceeds unless they can prove fraud, duress, or another legal basis to challenge the beneficiary designation.
Why It's Crucial to Keep Beneficiary Designations Updated
Outdated beneficiary designations are one of the most common sources of conflict after a death. People often forget to update their policies after major life events such as marriage, divorce, the birth of a child, or the death of a previously named beneficiary. If a former spouse is still named on the policy, they will likely receive the proceeds—even if the will clearly intended to leave the money to children or a new spouse.
While some states have automatic revocation statutes that remove ex-spouses as beneficiaries upon divorce, these laws vary widely and may not apply to all policies—particularly those governed by federal law or ERISA.
To avoid legal disputes, policyholders should regularly review all life insurance and retirement account beneficiary forms. A will cannot change a life insurance designation. Only the policyholder, while alive and mentally competent, can make that change directly with the insurer.
When Can a Life Insurance Payout Be Contested?
While it’s true that the named beneficiary on a policy usually takes precedence, there are exceptions. Our law firm regularly handles cases where the listed beneficiary is successfully challenged due to:
Fraud or undue influence at the time of the beneficiary change
Lack of capacity by the policyholder when the change was made
Conflict with a divorce decree or court order
Insurer error in processing or misrecording a beneficiary change
Violation of community property or marital property laws
In such situations, a legal challenge may lead to a court determining who is rightfully entitled to the proceeds. Insurers often respond by filing an interpleader lawsuit, depositing the funds with the court, and allowing the disputing parties to litigate the outcome. Our life insurance attorneys are experienced in defending rightful beneficiaries and resolving these complex disputes.
Tax Implications: Are Life Insurance Proceeds Part of the Estate?
In most cases, life insurance payouts are not subject to income tax when paid to a named beneficiary. However, they may be included in the estate for estate tax purposes if the insured owned the policy at the time of death and the proceeds are payable to the estate or a beneficiary who is also the executor.
For large estates, this can trigger tax liability—especially if the total estate value exceeds the federal exemption limit. Some policyholders create irrevocable life insurance trusts (ILITs) to remove the death benefit from their estate and reduce estate tax exposure. These tools should be considered as part of a comprehensive estate planning strategy.
FAQ: Life Insurance vs. Will – Who Gets the Money?
Does life insurance go through probate? No. Life insurance proceeds are paid directly to the named beneficiary and do not go through probate unless the beneficiary is the estate.
Can a will override a life insurance beneficiary? No. The beneficiary designation on the policy takes precedence over anything written in a will.
What if the will and the life insurance policy name different people? The insurance company must follow the policy and pay the named beneficiary, even if the will states otherwise.
What happens if no beneficiary is listed on the policy? If no beneficiary is named—or if the named beneficiary is deceased and no contingent beneficiary exists—the proceeds may go to the insured’s estate and be distributed according to the will or state intestacy laws.
Can a family member contest a life insurance payout? Yes, but only under specific legal grounds, such as fraud, undue influence, lack of mental capacity, or a court order that invalidates the beneficiary designation.
Does divorce automatically remove an ex-spouse as a life insurance beneficiary? Sometimes. Many states have laws that automatically revoke a former spouse’s beneficiary status after divorce, but this does not apply to all policies—especially federally regulated or ERISA-governed plans.
Can a power of attorney change a life insurance beneficiary? Only if the POA document explicitly authorizes such a change. Courts often invalidate beneficiary changes made by POA holders without clear permission.
Are life insurance proceeds taxable? Generally, no. Beneficiaries do not pay income tax on life insurance proceeds. However, if the policy is part of the estate, estate taxes may apply to very large estates.
Can a trust be named as the beneficiary of a life insurance policy? Yes. Many people use trusts to control how life insurance proceeds are distributed, particularly for minor children, special needs beneficiaries, or blended families.
What should I do if there’s a dispute over a life insurance beneficiary? Contact an experienced life insurance attorney immediately. Delays can result in funds being locked in court or wrongly paid out.