The Wrong Life Insurance Beneficiary - What To Do The Center for Life Insurance Disputes

The Wrong Life Insurance Beneficiary – What To Do

Sometimes an insurer gets it wrong and they pay a death claim to the wrong life insurance beneficiary. What can you do if you want to challenge the beneficiary of a life insurance policy? If you know in advance they’re going to pay the wrong person you can stop it and get it paid correctly. What are the most common reasons why life insurance claims get paid to the wrong person? Top reasons:

Someone Changed the Beneficiary Without the Owner’s Consent

There are a number of ways this gets done. One is when a person forges the policyowner’s signature on a beneficiary form. Another is when someone calls into the insurer and pretends to be the policy owner. However it’s done, most often it’s done by a family member or someone close to the policy owner who knows about the policy and has information about the owner. The other common element is that the policy owner usually trusts the person and never suspects their deceitful act.

Sometimes a family member or close friend changes the beneficiary of the policy to themselves when the policy owner is very sick or senile. There have been well-documented matters in which a paid caregiver who learns of a life insurance policy changes the beneficiary to themselves without the knowledge or consent of the insured. We’ve even seen situations where the person’s attorney uses trickery to change the beneficiary to themselves.

A life insurance policy is property and stealing property is a crime no matter who does it.

Owner Never Removed an Ex-Spouse as Beneficiary

Then there are those situations where the insured intended to take someone off of their policy but they never got around to doing it and then they die. The most common is an ex-spouse. But there have been similar mistakes with business partners, boyfriends, girlfriends, and even debtors.

Ex-spouses and Death Claims

To avoid the ex-spouse controversy many states have adopted a law that basically says, ‘when you divorce your ex-spouse is automatically removed as a beneficiary of your life insurance, if you want your life insurance to go to your ex-spouse you have to re-submit a new beneficiary form dated after your divorce naming your ex-spouse’.

This law excludes ex-spouses from getting life insurance benefits unless they are named after the divorce. Even if your now ex-spouse was the original beneficiary you still have to submit a new beneficiary designation after you divorce. Not renaming your ex-spouse as beneficiary means they will not get the claim money. If an ex-spouse was not renamed the claim money will go to the secondary beneficiary or to the next closest relative according to the law.

For those states that haven’t adopted this law (22 states have adopted) an ex-spouse can put in a claim for the money. There’s nothing more infuriating to a widow than for her husband’s ex-wife to get life insurance money he intended to go to his current wife.

No Named Beneficiary on File

We see this problem quite often with employee life insurance plans. With employee life insurance there aren’t any agents to help the insured fill-out the application and it’s usually done on a website where it’s hard to keep a paper copy as future proof (life insurance purchased with the aid of an agent almost never has this problem). With employer life insurance things like not naming a beneficiary get overlooked and no one double checks the information. It’s a huge problem to not name a beneficiary.

What happens when this person dies is the rules of federal employee benefits gets applied to the claim. It gets paid in this order: 1) spouse, 2) children, 3) parents, 4) sibling(s), 5) estate. But what if there is no spouse? What if the children can’t be found? What if the parents have already passed away themselves? The possibility for conflict and problems is exponential.

Owner Changed the Beneficiary but Insurer Never Recorded It

There are many cases we’ve represented where the insurer has been the cause of the problem for paying a claim to the wrong person. We’ve worked on claims where many years after someone sent in a change of beneficiary request they died. Only then did their family learn that the insurer never recorded he change. It happens. It’s very helpful to keep copies of changes to beneficiaries in the policy. If you know the insurer is going to pay the claim against the wishes of the policy owner you have to act quickly. Once the claim gets paid it’s very difficult to correct the problem. You need to notify the insurer immediately.

Divorce Decree Not Recorded with the Insurer

Many divorce decrees mandate that someone maintain life insurance for the benefit of the ex-spouse or their children. These decrees take legal precedent over other documents. But if the insurer isn’t aware of the stipulations they may pay the claim to the wrong person.

Likewise, when the conditions of a divorce decree expire the policy claim should be paid according to the policy. Again, if the insurer isn’t aware of the conditions of the divorce decree they may pay the wrong person by mistake.

The Insurer Wants to Interplead

Interpleaders are a very common method insurers use. They don’t use the interpleader to finalize a claim decision. They use an interpleader to move the decision of who to pay to a Court. The reality of interpleaders is that anyone involved in interpled funds will have to pay for an attorney to represent them and if the Court awards them the claim they’ll have to pay for the insurer’s attorney from their claim funds. There are three possible results of an interpleader decision: you may be awarded all the money, or some of the money, or none.

Unless your evidence is irrefutable your attorney will encourage you to work out a settlement with the competing party. Understand that if money is interpled neither party will ever receive all the money. The legal fees for your attorney and the insurer’s attorney will be paid from the claim before you receive anything.

Most insurers want competing claimants to come to their own settlement. They usually tell each party to come to some split agreement or they’ll interplead. At this point they’re setting two adversaries against each other without anyone to mediate. Each side thinks they’re entitled to the money and doesn’t want to budge. Most people in these situations aren’t aware of whether they have rights to the money or not – it’s just emotional. Getting someone to mediate is the best way to settle these situations and avoid having to go to Court.

What Should I do if the Death Claim Will be Paid to the Wrong Person?

Once a claim is paid by an insurer it’s very expensive and time-consuming to get it repaid properly. As soon as you suspect a death claim will be paid to the wrong person you should take action.

If you’re threatened with interpleader, get someone to mediate between the two parties.
If you suspect fraud, notify the insurer and get help immediately.
If you’re the spouse or ex-spouse of a recent deceased and the former spouse has made a claim for the money, check your state laws for your rights to the money.
If your common-law partner has passed and the insurer is challenging your right to the money, learn the ways to legally prove your relationship entitles you to the money.
If you’re making a beneficiary change be sure to get the right forms (here) and confirm the change was done with the insurer.