Everything You Should Know About Contesting a Life Insurance Beneficiary

Angelique Cruz

Matt Schmidt

Matt Schmidt is a nationally licensed diabetes insurance expert. Over this time frame he's helped out over 10,000 clients secure life insurance coverage with Diabetes. He's frequently authors content to Forbes, Entrepreneur, The Simple Dollar, GoBanking Rates, MSN, Insurancenews.net, and Yahoo Finance and many more.

Matt Schmidt is also the Co-Founder of Diabetes Life Solutions and Licensed Insurance agent. He’s been working with the Diabetes community for over 18 years to find consumers the best life insurance policies.  Since 2011, he has been a qualified non-member of MDRT, the most prestigious life insurance trade organization in the USA

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Last Updated on September 24, 2023

Life insurance is a financial instrument that can help shield you and your loved ones from an unexpected life event. It provides your named beneficiaries monetary compensation for the policyholder’s death or other defined conditions.  Obviously, life insurance is one of the most important financial products that you’ll own in your lifetime.

Contesting a life insurance beneficiary isn’t an easy decision to make. However, it may be essential to take action if you don’t believe that the circumstances permit the nominee to be a beneficiary.  While occurrences like these are rare, you may find yourself in a precarious position in the future.

Who Can Contest A Life Insurance Beneficiary?

Generally, anyone standing to bring a claim against a decedent’s estate can contest a life insurance beneficiary.  However, it may be quite difficult to have the judgment overturned in your favor.  Please do not think that this process is an easy one, and one that always leads to a favorable ruling.

1. Insurance Company

Life insurance policies typically provide a revocable beneficiary designation for death benefits. Over time, the policy owner can update the beneficiaries as often as they’d like.  Life insurance companies may challenge a beneficiary if they believe the insured did not intend them or if they were designated fraudulently.

2. Family Members Or Heirs Of The Policyholder

The policy of a life insurance beneficiary varies from the policyholder’s family members or heirs. Contests are possible when one of the family members believes that someone other than them should be the beneficiary and that the benefits were assigned unfairly in the first place.

3. Beneficiaries Mentioned On The Policy

Contesting a beneficiary’s claim usually involves a lack of understanding of the life insurance policy, an altered beneficiary list, or a suspicion of fraud or misappropriation. It’s crucial to know that courts and government agencies have measures to make modifying or challenging benefit claims fair and accessible.

4. Beneficiaries Mentioned In A Will Or Trust

Beneficiaries are named on a will or trust and have the power to object to any portion of a policy they feel they have been excluded from unfairly. It’s important to note that challenging an insurance beneficiary may result in hefty legal fees and court costs, depending on the circumstances.

5. The Deceased’s Creditors

Creditors of a deceased person have rights to unpaid debts. Creditors must sue specified beneficiaries to have their claims heard. Fortunately, many life insurance companies offer resources for these legal difficulties.  We will note that issues like this rarely happen.

How Contestation Of A Life Insurance Beneficiary Happens

A life insurance beneficiary might be contested for a variety of reasons.  Here are some sample situations that may lead to a policy being contested.

1. When divorce or separation occurs

Evidence must be provided to validate an individual’s state of mind regarding the policy. If there isn’t sufficient proof, then depending on the context, courts may choose not to contest a beneficiary and accept the selection initially made by the policyholder.  In situations, the court may require a life insurance policy to be in force to satisfy a divorce obligationhttps://diabeteslifesolutions.com/life-insurance-and-your-divorce/.

2. If the designated recipient is too young to legally receive the funds

Undue influence happens when one party takes advantage of another’s vulnerability or inexperience to persuade them to do something they would not usually have done. This can compromise the intentions of the policyholder and lead to a consistency that may result in legal recourse.  Reasons like this are why we do not recommend listing a minor child as a beneficiary.

3. The policyholder did not mention any beneficiary

Depending on the life insurance contract, a beneficiary might protest its distribution if they feel they were improperly left out or named main. Before signing up for an insurance policy, all parties should grasp its terms to avoid financial hardship for the policyholder’s loved ones.

On every insurance application, a person MUST list a beneficiary.  But if that listed person becomes deceased before another one is listed, the insurance company will not pay the death benefit out to them.  Rather, the death benefit is paid out to the insured’s estate.

4. The policyholder did not understand the consequences of naming the beneficiary

If the policyholder dies without a living beneficiary, the courts will likely analyze the policy and decide what to do. Policyholders must carefully assess their life insurance condition to ensure their desires are carried out after death.  By default, the policy will pay out to the insured’s estate.  Who the estate ultimately pays out to will depend on many variables.

5. A false claim was submitted by the policyholder

The policyholder should ensure that their wishes for how their beneficiary will be provided for after their passing are considered. Otherwise, a court could take control and decide who will receive funds from an insurance policy.

6. The deceased’s debts are settled by the death benefit, which is distributed to the deceased’s creditors

Policyholders and beneficiaries may face legal action and insurance refusal if proven fraudulent. Policyholders and beneficiaries should be informed of applicable legislation to prevent suspected fraud.

7. The policyholder’s mental capacity was impaired at the time of beneficiary designation

To resolve this matter legally, litigation would undoubtedly be necessary. When these concerns arise, getting competent legal counsel on one’s beneficiary rights is essential to ensure conformity with the laws and regulations governing these legal affairs.

8. The policyholder’s preferences are ignored

The primary reason is that the amount a creditor can get depends on your state and how much money is left after the funeral and court charges. Probate court judges usually resolve life insurance beneficiary disputes.

9. Arguments about the distribution of a death benefit

After a divorce, all joint duties and designations must be secretly assessed to see if they still apply. Life insurance policyholders should examine and update their policies as dynamics change.

10. The insured was subjected to improper influences

Underage life insurance beneficiaries have court-appointed guardians. The guardian must use these funds for the minor’s education and living expenses unless otherwise stated in an individual’s will or trust agreement.

Steps to Contest a Life Insurance Beneficiary

To contest a life insurance beneficiary, you must:

1. Collect The Evidence

Collect whatever paperwork that may be helpful, including the life insurance policy, the insured’s will, bank statements, and any other statements from eyewitnesses. You should get expert testimony if you need it to back up your case.

2. Review The Policy

It is essential to analyze the policy’s terms and conditions to determine if there are any provisions for challenging the beneficiary designation.

3. Inform The Insurance Company

Remember to notify the insurance company of your intention to oppose the beneficiary selection. The insurance firm may ask for a written statement explaining why you’re disputing the claim.

4. Take Legal Action

If the insurance company refuses to alter the beneficiary or the matter cannot be settled via discussion, you may need legal action.  Seek out a qualified legal expert, and they’ll help you take the necessary steps.

5. Appear In Court

If the issue ends in court, you must appear and argue your position before the judge. The legitimacy of the beneficiary designation will be determined by the judge based on the facts presented and the policyholder’s stated purpose.

6. Consult Legal Counsel

Consult an attorney or financial expert before making any changes to the beneficiaries on a life insurance policy, especially before contesting a beneficiary’s eligibility. They’ll provide sound counsel and show you how to deal with the legal system.

The Law & Contestation of a Life Insurance Beneficiary

State regulations control life insurance beneficiary contestation in the US. Life insurance policy validity and beneficiary rights vary by state. However, several federal laws impact life insurance policy contestation.

The Employee Retirement Income Security Act (ERISA) governs employer-sponsored life insurance. ERISA-governed policies can only be challenged for fraud or misrepresentation.

On the other hand, the Health Insurance Portability and Accountability Act (HIPAA) governs health information privacy and security. After a policyholder dies, beneficiaries can access the policyholder’s health information and continue coverage under certain conditions.

Many states have enacted model legislation to distribute death benefits when the policyholder and beneficiary die simultaneously. These statutes determine the death benefit recipient when the death sequence is unknown.

Contesting a life insurance beneficiary requires documentation and consultation with a state-licensed attorney or financial counselor. They can assist you in understanding the law and safeguard your rights.

FAQs about Contesting a Death Benefit

In simpler terms, a life insurance beneficiary is an individual or entity designated to receive the proceeds of a life insurance policy upon the insured’s death. As the policy owner, you would list a person, or entity, to receive the life insurance benefit at the time of your death.
Any family member or close friend of the deceased may contest a life insurance beneficiary if they believe that the policyholder’s wishes did not make the selection. Or a business partner, legal advisor, or financial advisor could begin the proceedings.
The costs associated with contesting a life insurance beneficiary vary depending on the case’s complexity and whether or not legal action is necessary. There is no way of knowing how much this could cost. It would be wise to speak with legal professionals about the possible costs to contest a life insurance payout.
The time it takes to contest a life insurance beneficiary depends on how complex the case is and if legal action is required. After a person files a death claim, this process could take 6 to 12 months. Maybe even longer.

The Bottomline

Purchasing life insurance is a responsible approach to safeguard your family from financial hardship in the event of your untimely death. It is important to name a beneficiary on your life insurance policy and to revisit that designation on a regular basis to ensure that the intended beneficiaries are receiving the policy benefits.

Having precise and up-to-date beneficiary information does more than guarantee the correct people receive the life insurance payout in the event of your passing. It also helps reduce the risk of a claim being contested.  For all the above reasons, we strongly suggest to review your policies and update beneficiaries on a regular basis.

Long legal processes are involved in contesting a life insurance claim, so it’s important to maintain track of who you’ve designated as beneficiaries. By taking these measures, you can rest assured that your preferences will be respected and the process will go more smoothly.  We hope this information is of use, and please feel free to contact us if you need any assistance.

Angelique Cruz has been researching personal finance for years, and has expertise in macroeconomics, financial statistics and personal finance. She specializes in writing informative content around personal, auto and home insurance. Angelique has a degree in psychology from the Ateneo de Manila University. She’s often featured on MoneyGeek and loves providing high quality content that benefits consumers.

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