How Does Life Insurance Work in New York State?

If you are the owner or a beneficiary of a life insurance policy issued in New York State, this guide will provide you with important information about how life insurance works there. While there are some federal laws governing life insurance nationwide, every state treats insurance laws differently, and in New York, there are things you need to know whether you are the insured or a life insurance beneficiary.

For well over two decades, the experienced life insurance attorneys at Boonswang Law have helped beneficiaries in cases where life insurance is not paying out. If you have questions about life insurance and you are a resident of New York State, contact us today to speak with an attorney. Your initial consultation is free of charge, and we don’t get paid unless we win!

Who Can Be a Life Insurance Beneficiary in New York?

People you are related to, people you are not related to, trusts, organizations, businesses, charities, your estate… you can designate any, some, or all of these as your life insurance beneficiaries in New York State. 

You can designate one or more people or entities and also designate the percentage of death benefits that will be allocated to each. You can also designate “secondary” or “contingent” beneficiaries that will receive the death benefit if the primary beneficiaries are not available.

Minor Children as Beneficiaries of Life Insurance in New York

Children under the age of 18 should not be named as beneficiaries in New York State. If they are, the court may appoint a guardian to receive and manage the funds in their name until they reach the age of majority. Technically, a child above the age of fourteen years and six months can receive death benefits, but counting on this technicality opens the door to possible dispute and litigation.

If an insured wants minor children to receive life insurance proceeds, he or she should create a trust for the benefit of those children and name the trust as beneficiary. In the alternative, the insured can name an adult custodian of the funds as beneficiary.

How Life Insurance Pays Death Benefits in New York

First, the insurance company will try to locate and pay the insured’s named beneficiary or beneficiaries. 

If the named beneficiary has died or the beneficiary designation is invalid for any reason, the insurance company will try to locate and pay the contingent or secondary beneficiary or beneficiaries

If the insurance company cannot locate either the named beneficiary or the contingent beneficiary, it will usually pay the death benefits to the estate of the insured. This is commonly provided for in the policy itself and not a matter of state law. The insurance proceeds are then subject to the will of the insured and are distributed among the heirs accordingly. 

In the case where there is no will, the insured has died “intestate” and the insurance proceeds will be distributed according to New York’s intestacy laws, which can be found here.

Will a Life Insurance Beneficiary Designation Naming a Spouse be Changed by Divorce in New York?

Yes.If the insured divorces the beneficiary of his or her policy, that beneficiary designation is automatically invalid under the New York revocation on divorce statute:

EPTL 5-1.4(a)(1) provides: 

Except as provided by the express terms of a governing instrument, a divorce .. revokes any revocable (1) disposition or appointment of property made by a divorced individual to, or for the benefit of, the former spouse, including, but not limited to, a disposition or appointment by will, by security registration in beneficiary form (TOD), by beneficiary designation in a life insurance policy …. 

If the insured wishes to retain the beneficiary designation after divorcee, he or she must reaffirm the designation of the ex-spouse as beneficiary after the divorce decree is entered. This is often desired the insured is paying spousal support or child support and is complying with family court orders to maintain life insurance to guarantee that income stream.  

ERISA Life Insurance Beneficiary Designation Rules and Ex-Spouse in New York

If a life insurance policy is acquired as a benefit of employment, it is likely governed by the Employee Retirement Income Security Act of 1974, known as “ERISA.”  In a life insurance claim dispute governed by ERISA, this federal law will supersede New York state law.

Under ERISA, the life insurance beneficiary designation is strictly observed regardless of whether the insured divorced the beneficiary or not. In other words, despite New York state law revoking an ex-spouse’s beneficiary designation, if an insured fails to change the named beneficiary after divorce, the ex-spouse will receive the death benefit. 

The bottom line is, if an insured has a policy through work that is governed by ERISA, and does not want his or her ex-spouse to receive the death benefit, he or she must change the beneficiary designation before they die.

Can You Contest a Life Insurance Beneficiary Designation in New York?

Yes. Here are two of the most common circumstances that prompt life insurance beneficiary disputes in New York State:

ATTEMPTED BENEFICIARY CHANGE BY THE INSURED

If the insured tried to change the beneficiary of his or her policy but did not do so correctly or completely, a court in New York will look at extrinsic evidence to determine what the intent of the insured was at the time he or she tried to change the beneficiary designation.

FRAUDULENT BENEFICIARY CHANGE 

If a formerly-named beneficiary alleges that the insured was coerced of forced to change a beneficiary designation, a New York court will look at evidence and testimony about the insured’s health, state of mind, and the role of the new beneficiary in the life of the insured at the time the beneficiary change took place.

What Happens when the Insured Designates Someone as Beneficiary on the Policy, and Names Someone Else as Beneficiary in his Will?

In New York, the terms of the policy will control the outcome of this dispute, rather than New York State law or federal law. You and your attorney will have to comb through the provisions of the policy documents to determine the answer to this question, as it will vary policy-to-policy.

I am the beneficiary of a New York life insurance policy and someone is contesting the beneficiary designation, what do I do?

You should defend for beneficiary designation by securing the representation of an experienced New York life insurance beneficiary attorney. Contact us to schedule an evaluation of your case.