Disputing a Life Insurance Beneficiary: Factors to Consider
When a policyholder goes through a divorce without updating the beneficiaries on their life insurance policy, it can raise questions for the new spouse and their children regarding the possibility of disputing the previous beneficiary designation. While there are limited circumstances in which a life insurance beneficiary can be disputed, it typically revolves around significant life changes.
Disputing a life insurance beneficiary involves legal proceedings that are determined by the courts, not the insurance companies themselves. The insurance companies cannot independently decide whether a challenger's claim is valid and the beneficiaries should be changed; only the courts have the authority to make such determinations after assessing the evidence presented. Ultimately, the insurance companies will abide by the court's decision.
In most cases, disputing beneficiaries in court can be challenging. An insurance policy is considered a binding contract that is difficult to refute. Proving fraud, such as coercion by someone who entered the policyholder's life near the end, can be particularly arduous.
Not only is disputing a beneficiary legally complex, but it can also be financially burdensome and time-consuming. During ongoing lawsuits, life insurance companies place the funds in a trust overseen by a state court, while the estate remains open and accumulates fees, taxes, and penalties. Some cases may go through mediation or arbitration. In certain instances, it may be more financially prudent for the lawyers of the parties to reach an agreement and divide the proceeds, rather than engaging in a protracted court battle that could diminish the payout due to legal fees.
Given the complexities surrounding the challenge of beneficiaries, it is advisable to prevent disputes before they arise. Regularly review your life insurance policy, especially during significant life changes, and ensure that your policies accurately reflect your current needs. When making changes to beneficiaries, it can be beneficial to have witnesses present. For more detailed information, we recommend reaching out to our experienced life insurance lawyers.