Most people assume that anyone named on a life insurance policy automatically gets paid. In reality, that is not always true. While policyholders have broad freedom to name beneficiaries, there are situations where a named beneficiary cannot legally receive the proceeds or where the payout must be redirected.
Understanding who is eligible and who may be disqualified helps explain why beneficiary disputes and interpleader lawsuits happen so often.
When you are facing a beneficiary dispute, we are here for you. Look at our beneficiary dispute fact sheet for more information.
Who Is Eligible to Be a Life Insurance Beneficiary
In general, a policyholder may name almost any living person or legal entity as a beneficiary.
An individual beneficiary can be a spouse, child, parent, other relative, friend, romantic partner, or business associate. There is no requirement that the beneficiary be related to the insured at the time of death.
Policies can also name more than one beneficiary. The insured can split proceeds equally or assign specific percentages. Many policies also include contingent beneficiaries who receive the benefit only if the primary beneficiary cannot.
Trusts are commonly used as beneficiaries, especially when minors are involved or when the insured wants to control how and when money is distributed. A trustee receives the funds and follows the trust instructions.
An estate may also be named as a beneficiary. This is usually not ideal because it subjects the proceeds to probate and creditor claims, but it is legally permitted.
Charitable organizations, nonprofits, and other legally recognized entities may also be named as beneficiaries if allowed by the policy.
Who May Be Ineligible or Disqualified
Even if someone is listed as a beneficiary, payment is not guaranteed.
Minors generally cannot receive life insurance proceeds directly. When a minor is named, the insurer often requires a court-appointed guardian or holds the money until adulthood, which causes delays and added costs. This is why trusts or custodial arrangements are usually recommended instead.
Pets and animals cannot be beneficiaries. Life insurance can only be paid to a person or a legal entity. Funds intended for pet care must go through a trust or estate plan.
A beneficiary must be alive at the time of the insured’s death. If the named beneficiary died earlier or cannot be identified, the proceeds usually pass to contingent beneficiaries or the insured’s estate.
A beneficiary who intentionally caused the insured’s death is legally barred from receiving the proceeds. Every state has a version of a slayer statute that treats the disqualified beneficiary as if they predeceased the insured.
Court orders can also override beneficiary designations. Divorce decrees, child support orders, and spousal support obligations sometimes require life insurance to benefit a specific person. If the insured violates that order, a court can redirect the proceeds.
Beneficiary designations can also be invalidated if they were created through fraud, forgery, coercion, undue influence, or when the insured lacked mental capacity. These disputes often arise with late-in-life changes involving caregivers or sudden deviations from long-standing estate plans.
Insurable interest problems can also disqualify a beneficiary in certain cases. While insurable interest is usually required only when the policy is issued, policies tied to improper arrangements or stranger-originated life insurance schemes can be challenged and sometimes voided.
What Happens When There Is a Dispute
Life insurance companies do not decide these disputes themselves. When eligibility is unclear, insurers often freeze payment and file an interpleader lawsuit, deposit the money with the court, and let a judge determine who is legally entitled to the proceeds.
This is why beneficiary disputes often turn on legal analysis rather than policy language alone.
Bottom Line
Most people named on a life insurance policy are eligible to receive benefits. However, payment can be blocked or redirected when a beneficiary is a minor, deceased, involved in wrongdoing, barred by court order, or named under questionable circumstances.