When a policyholder passes away, his or her life insurance benefit is supposed to go to the named beneficiary, often a spouse, family member, or close friend. However, when multiple beneficiaries claim the death benefit, things can quickly become complicated. Alleged forgery/fraud, errors on change of beneficiary forms, and specific circumstances regarding divorce are all typical reasons for challenging beneficiary designations.

Forgery/fraud

Allegations of fraud are frequent in life insurance cases. A family member may have originally been named beneficiary, yet the policyholder recently designated someone else to receive benefits in their place. However, it’s important to note that fraudulent changes in beneficiary are exceedingly difficult to prove. Anyone can legally be named as a beneficiary by the policyholder regardless of the relationship between both parties.

Still, there are specific circumstances during which a change of beneficiary can be fraudulent. For instance, written or eyewitness evidence may be able to prove that the change of beneficiary form signed by the policyholder was completed under duress or by someone other than the policyholder. The policyholder may also have been mentally compromised by dementia, Alzheimer’s, or some other condition, which would invalidate any change in beneficiary. Without concrete evidence, however, allegations of fraud are nearly impossible to prove.

Invalid forms

Sometimes, the policyholder may intend to change the beneficiary on a life insurance policy but make mistakes when completing or filing the change of beneficiary form. Insurance companies will often reject forms which are incomplete or improperly formatted, in which case the originally designated beneficiary receives the death benefit instead of the “new” one. In contrast to allegations of fraud, invalid forms provide a strong argument in favor of the “new” beneficiary.

For instance, in Williamson v. Western-Southern Life Ins. Co., the court ruled in favor of the “new” beneficiary since the available evidence suggested that the policyholder intended to enact the change. Case No. 1098, (Ohio Ct. App., April 19, 1977). Even though there was no official form on file with the insurance company, multiple pieces of corroborating evidence demonstrated that the policyholder wanted to change the beneficiary designation on the policy. In similar cases, even handwritten notes may be sufficient to prove the policyholder’s intent to change the beneficiary.

Divorce

After divorce, a spouse will likely want to change the primary beneficiary on his or her life insurance policy from an ex-spouse to someone else, such as a child or relative. In these cases, changing who gets paid upon the policyholder’s death involves “revoking” the status of the previous beneficiary and designating a new one in their place. However, this is only possible if the beneficiary is “revocable” (see our previous blog post).

Divorce decrees will often require that an ex-spouse receiving alimony be the beneficiary of a life insurance policy on the ex-spouse paying the alimony. This is especially common when a spouse receiving alimony and child support has majority custody of the couple’s children; life insurance may be used to supplement lost income in case the paying spouse unexpectedly passes away. (Further, in the nine (9) community property states, courts may also enforce “equitable division” of paid-up “whole life” policies (California is one such state).) Whenever a divorce decree specifies the beneficiary of a life insurance policy, the beneficiary becomes “irrevocable.” The policyholder is then prevented from “revoking” his or her ex-spouse as beneficiary without consent.

Let’s take the example of Mary, Bill, and John. Mary and Bill married, had children, and divorced. The divorce decree gave full custody of their children to Bill, who receives monthly child support payments from Mary. The decree also specified that Mary maintain her existing life insurance policy to provide extra financial security for Bill and their children. Years later, Mary marries John and files a change of beneficiary form with her insurance provider such that John is now listed as beneficiary in place of Bill. When Mary passes away, the insurance company pays John the death benefit. However, this goes against the divorce decree, which explicitly states that Bill should remain beneficiary. Bill now may have legal grounds to sue either Mary’s estate or the insurance company since he, not John, was the legally valid beneficiary to Mary’s policy.

In general, challenging a life insurance beneficiary designation can be a complex, difficult, and heavily litigated process. This makes it all the more important to enlist the help of an expert. If you are the rightful beneficiary to a life insurance policy yet your claim has been denied, don’t hesitate to contact an experienced life insurance lawyer.