Articles Tagged with: Life insurance beneficiary rules
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Contesting a life insurance beneficiary designation

Can a Life Insurance Beneficiary Designation Be Contested?

Yes, you can contest a life insurance beneficiary designation and you may be able to sue for life insurance proceeds.

Common reasons to dispute a life insurance beneficiary designation include:

  • the beneficiary designation was forged,
  • the beneficiary designation was fraudulent,
  • the beneficiary designation was made under duress,
  • there were errors on the change of beneficiary form, and
  • state law mandates a beneficiary change.

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 under life insurance beneficiary rules. Alleged forgery/fraud, errors on change of beneficiary forms, and specific circumstances regarding divorce are all typical reasons for fighting life insurance beneficiary designations.

Cases involving life insurance beneficiary disputes can be complex and there are always mitigating circumstances. Reach out to our office today to speak with a life insurance dispute lawyer that can guide you through a potentially complex legal situation

Challenging a Life Insurance Beneficiary Designation because there was a Forged Life Insurance Beneficiary Change

Yes, this is one of the most common reasons for life insurance disputes. Where there are allegations of a forged life insurance beneficiary change, typically, a family member may have originally been named beneficiary, yet the policyholder recently designated someone else to receive benefits in their place.

It is important to note that fraudulent changes in beneficiary designation 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.

We’ve been able to prove them in certain circumstances.

For example, in one case the insured was bedridden, and her daughter gave herself power of attorney and changed the life insurance beneficiary from our client to herself. We got our client paid.

Challenging a Life Insurance Beneficiary Designation because the Change was Fraudulent

It is important to note that fraudulent changes in beneficiary designation are exceedingly difficult to prove. Anyone can legally be named as a beneficiary by an insured regardless of the relationship between both parties.

Even so, circumstances may prove that a change of beneficiary was fraudulent. For example, if the insured was mentally compromised by dementia, Alzheimer’s, or some other condition when they changed the beneficiary designation, that would invalidate any change in beneficiary.

Challenging a Life Insurance Beneficiary Designation because the Change was Made under Duress

Unfortunately, we have had cases where a caregiver or purported romantic partner manipulated or forced the insured to change the life insurance beneficiary designation to themselves. Any late-in-life beneficiary change, or a last-minute beneficiary change, should be treated as suspicious.

Can someone with power of attorney change a life insurance beneficiary?

Yes, but if that change was not authorized by the insured or was clearly self-serving, that can be challenged. For example, in one of our recent cases, the insured was bedridden. Her daughter gave herself power of attorney and changed the life insurance beneficiary from our client to herself. We got our client paid.

Was there a mistake made on the change of beneficiary form?

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.

What happens when a life insurance policy is contested for these reasons? Example: 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.

We’ve had many cases like this.  In one recent case, our client was married to the insured for many years.

The insured’s daughter was originally the beneficiary of his life insurance policy, but they became estranged during that time, and he filled out and submitted a change of beneficiary form changing the beneficiary to his wife, our client.

He never received notice that the form was deficient in any way, so assumed the change was valid.

After he passed, the insurer asserted that the beneficiary change form was not filled out correctly and wanted to pay the daughter.  We got our client paid.

What Happens When the Life Insurance Beneficiary is an Ex-Spouse?

The law is complex regarding life insurance and divorce. After divorce, an insured will likely want to change the primary beneficiary on their life insurance policy from an ex-spouse to someone else, such as a child or relative. However, there are instances when they might not be able to, or the ex-spouse is removed as beneficiary by operation of state law.

Change of Beneficiary Due to Revocation-Upon-Divorce State Statute

Life insurance beneficiary rules after divorce vary by state. About half of all states maintain a “revocation-on-divorce” statute which provides that divorce effectively removes an ex-spouse as beneficiary. However, a revocation-upon-divorce statute is overridden if:

  • the insured re-designates their ex-spouse as beneficiary, or;
  • if the divorce decree states that an ex-spouse will remain the beneficiary.

Divorce decrees often require that an ex-spouse receiving alimony be the beneficiary of a life insurance policy on the ex-spouse paying the alimony. Whenever a divorce decree specifies the beneficiary of a life insurance policy, the beneficiary becomes “irrevocable.” The insured is then prevented from “revoking” his or her ex-spouse as beneficiary without consent. If the insured does change the beneficiary designation, the former beneficiary has a strong case for a beneficiary dispute.

Change of Life Insurance Beneficiary Designation in Community Property States

In the nine (9) community property states, courts may also enforce “equitable division” of paid-up “whole life” policies regardless of who is the named beneficiary.

If term life insurance premiums were paid with marital assets, the spouse or ex-spouse may be entitled to some or all of the death benefit regardless of who is the named beneficiary.

State law varies on these issues, and federal ERISA law may override state life insurance law if the policy is group life insurance through an employer. Check out the life insurance rules in NY, the life insurance rules in Texas, the life insurance rules in Florida, and the life insurance rules in California.

An example of a life insurance policy after a divorce

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. This is one of the rare circumstances where the life insurance beneficiary be changed after death.

What Do I Do if I am the Named Beneficiary on a Life Insurance Policy and Someone Disputes that?

Challenging a life insurance beneficiary designation can be a complex, difficult, and heavily litigated process. Defending your designation as beneficiary in a life insurance beneficiary dispute is equally difficult. This makes it all the more important to enlist the help of an expert in either case.

We’ve gotten our clients paid in beneficiary disputes. If you are the rightful beneficiary of a life insurance policy yet your claim has been denied, or if you are defending in a beneficiary dispute, don’t hesitate to contact us for help.

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Life insurance beneficiary rules in California – 2020 Update

California Beneficiary Laws

For the most part, the process of naming beneficiaries to a life insurance policy is the same across all states. In fact, unless prohibited to do so by law, anyone can be named as beneficiary to a life insurance policy, regardless of whether he or she has any vested interest in the insured.

Complications arise in certain states, such as California, when an insured is married or divorces.

If you’re involved in a dispute regarding a life insurance policy, your can speak with a life insurance beneficiary lawyer at our firm about your case.

What is a Beneficiary in Life Insurance?

A beneficiary to a life insurance policy is someone who was named by the insured person as the person entitled to receive the death benefits upon the death of the insured.

Who Can Change the Beneficiary on a Life Insurance Policy?

Only the policy owner can change a life insurance beneficiary. Life insurance is a private contract between a policy owner and the life insurance company.

Can a Policy Owner Change the Beneficiary on a Life Insurance Policy to Someone other than his Spouse or Children?

Yes. A policy owner has the right to change the named beneficiary or beneficiaries from his spouse or children to anyone else at any time, even if he is married.  However, such a change may or may not be effective according to state law. Most life insurance policies are revocable, meaning the policy owner may change the beneficiary at any time. Some appoint irrevocable beneficiaries, in which case the beneficiary, once designated, cannot be changed.

The Effect of Divorce on Life Insurance Beneficiary Designation in California

Divorce can heavily complicate the process of changing beneficiaries, as explained in our previous post regarding how divorce affects beneficiaries of life insurance policies.

While some states have enacted laws automatically revoking ex-spouses as beneficiaries after divorce, California has not. California, a community property state notorious for having the most complex divorce law in the United States, adds an additional layer of complexity to life insurance and divorce settlements in that if premiums were paid from joint funds, an ex-spouse may be entitled to a payout or death benefits even if not named as beneficiary.

In California, Life Insurance May Be Community Property

California is one of nine (9) community property states in which all property acquired during marriage belongs equally to both parties. After divorce, the policyholder will most likely retain his/her term life policy and be allowed to name new beneficiaries in place of his/her ex-spouse.

However, the community property rule does apply to policies with an accumulated “cash value,” most often in the form of whole life or universal life policies, provided that the policy was purchased during marriage with community funds. In these cases, the policy’s cash value will be divided between the spouses, but ownership of the policy will usually transfer to the spouse listed as beneficiary. This means that the insured’s ex-spouse, who now owns the policy, is obligated to make premium payments and reserves the right to change the beneficiary.

Let’s consider an example. Willy purchased a whole life insurance policy and named his wife, Kate, as beneficiary. After years of paying on the policy and accumulating $10,000 in cash value, Willy and Kate file for divorce. The divorce decree dictates that Willy and Kate each receive $5,000 of the accumulated cash value, while ownership of the policy transfers to Kate. Now, Kate is in charge of making premium payments on the policy and will receive the death benefit if Willy passes away. Willy can no longer change the beneficiary from Kate to someone else. Kate now owns the policy, and only she has the right to change the beneficiary from herself to someone else.

How Accumulated Cash Value is Divided Varies Greatly in California Divorces

It’s important to remember that, while the above situation is often the case in California marital settlement agreements and divorce decrees, the manner in which community life insurance policies are divided is entirely circumstantial. Often, judges will use their own discretion to figure out who owns the policy based on the facts of each individual case. For instance, if the premiums for a whole life policy are fully paid up, then the death benefit, in addition to the cash value, usually gets classified as community property.

Life Insurance Spouse Beneficiary Rules in California

If the insured dies while married, the portion of the death benefit a spouse will receive when the insured named someone other than the spouse as beneficiary will depend upon how premiums were paid, when the policy was purchased, and what type of policy it is.

Is Term Life Insurance Community Property in California?

Maybe. If the insured purchased term life insurance during the marriage and dies while married, the entire policy is considered community property, giving the spouse 50% of the death benefit if income earned during the marriage was used to pay premiums. The other 50% would go to the named beneficiary.

If the insured purchased term life insurance before the marriage, then married and died while married, the spouse would be entitled to the portion of 50% of the death benefit calculated from how much of the policy premiums were paid before the marriage, and how much were paid after.

For example, if Mary buys a term life insurance policy two years before marrying John in California, then dies a year later, and John finds out Mary named her boyfriend Sam as beneficiary, John is entitled to one-third of 50% of the death benefit and Sam would receive the remainder.

Is Permanent Life Insurance Community Property in California?

Maybe. If the policy in question is a form of permanent life insurance, such as whole life or universal life, again, the spouse is entitled to the portion of 50% of the accumulated cash value according to the amount of premiums paid with income earned during the marriage, even if someone else is named beneficiary.

ERISA Supercedes California Life Insurance Beneficiary Law

If the life insurance policy in question was obtained through employment as a benefit, it is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).  Employment-obtained life insurance policies are not subject to ERISA if the employment involved the government or a church. One provision of ERISA provides that the named beneficiary is always honored, regardless of the insured’s marital status and who the named beneficiary may be.

In states that have laws automatically invalidating an ex-spouse as life insurance beneficiary, if the policy was a benefit of employment, the ex-spouse remains beneficiary if still named. As explained previously, this is not the case in California.

In California, ERISA may dictate that the death benefit is paid to someone other than the spouse despite community property laws. But because beneficiary disputes are expensive, often the named beneficiary and spouse are willing to settle the matter outside of court with the help of their attorneys.

Consult with an Experienced Life Insurance Beneficiary Lawyer

In cases of divorce or death of the insured, or when the policy is governed by ERISA, when the named beneficiary is not the insured’s spouse, disputes often arise over who is the rightful beneficiary. For example, an ex-spouse and a family member of the insured or the girlfriend or boyfriend of the insured may both file claims for the same death benefit. Who gets paid according to California life insurance beneficiary laws?

In these situations insurance companies will frequently pay the named beneficiary without consulting relevant family law. If your claim has been wrongfully denied because you are not the named beneficiary and you are thinking of contesting the life insurance beneficiary designation, it is in your best interest to have a lawyer concentrating in this area evaluate your case.

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Can an interpleader take money from the winner of a contested insurance policy to pay court costs?

Ideally, the death benefit on a life insurance policy is paid directly from the insurance company to the named beneficiary or beneficiaries. However, disputes frequently arise over who is rightfully entitled to the death benefit. One claimant might allege that the other claimant changed the insured’s beneficiary designation through forged paperwork, or that the named beneficiary is invalid because he or she was responsible for the insured’s death. When multiple parties claim the same death benefit, an insurance company may choose to file an interpleader action.

Defining interpleader

Interpleader” refers to a specific type of lawsuit. Instead of a single claimant suing a single stakeholder, interpleader involves multiple claimants suing one another for rights to the stakeholder’s property. For instance, let’s say that John owned a house. In his will, John dedicated the property to his daughter, Kate, but John also verbally agreed to give the house to his son, Ben. After John dies, the executor of his estate doesn’t know to whom he should give the house. The executor then files an interpleader action, such that Kate and Ben are now litigating against one another for rights to John’s house. This allows the executor to avoid any liability resulting from paying the wrong person.

Similarly, life insurance companies may encounter multiple parties who all claim the same death benefit. The company may choose to file an interpleader action, such that the claimants are fighting against one another instead of against the company. The company is acknowledging it owes the benefit to someone but requests that the court determine the correct party.

Court costs & attorney fees

Generally speaking, when a “neutral stakeholder” such as a life insurance company asks for reimbursement of any court/attorney fees, the court will grant reimbursement by taking from the winning claimant’s death benefit. If a winning interpleader claimant were to receive a $10,000 death benefit, the insurance company (as neutral stakeholder) could subtract $500 in attorney and court fees, leaving $9,500 to the winning claimant. These fees are usually insignificant, as the stakeholder is only filing, drafting, and serving a few documents. However, in a more complex case, the costs may be substantial.

Dealing with competing claims for a life insurance policy’s death benefit can be a complex, heavily litigated process. If your claim has been wrongfully denied, don’t hesitate to contact an experienced life insurance lawyer.

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Why Would a Life Insurance Policy Need Probate Papers?

Does a Life Insurance Policy have to go through Probate?

Generally speaking, no.

Usually, life insurance death benefits are paid out directly from the insurer to the beneficiary or beneficiaries without going through probate. Life insurance is not part of the insured’s estate and is not subject to debt collection, payment of the insured’s bills, or taxation as inheritance.

However, there are circumstances under which the death benefit from a life insurance policy is transferred to the insured’s estate rather than to a beneficiary. Under these circumstances, the life insurance proceeds will be subject to the probate process.

Having trouble with your life insurance claim because of a vague, invalid, or out-of-date beneficiary designation? Are you an ex-spouse entitled to the life insurance death benefit? Do you think you should be the beneficiary of an employer-provided life insurance policy? Call us for your free, no-obligation case evaluation.

Are life insurance proceeds considered part of an estate?

No. Life insurance death benefits pass to beneficiaries by operation of state law, not through the insured’s estate. Are life insurance proceeds public record? No.

How do life insurance proceeds end up in the decedent’s estate?

When is Life Insurance Part of the Estate?

When there is an invalid or out-of-date beneficiary designation, or the designated life insurance beneficiary is deceased or cannot be found, the life insurance company pays the death benefit to the estate of the insured.

What happens when life insurance goes to the estate?

When there is no beneficiary on a life insurance policy, the life insurance beneficiary rules dictate that the death benefit will be subject to the probate process.

“Probate” refers to the process by which a deceased individual’s estate is distributed. The executor uses the deceased’s will to determine who are the beneficiaries entitled to a portion of the insured’s estate. If the deceased had no will, the estate is distributed according to the state’s laws of intestacy.

Unlike the process of claiming the death benefit as a beneficiary, which is streamlined and private, the probate process varies greatly state-to-state basis and is a matter of public record. And especially in the case of high-value estates, probate can be a heavily-litigated process, with multiple parties claiming conflicting amounts of the deceased’s assets.

Is the beneficiary of life insurance responsible for debt? Can life insurance proceeds be taken by creditors?

No, and this is one of the reasons going through probate is disadvantageous even if the estate value ends up being distributed appropriately.

If the insured was in debt at the time of death, their estate will first be used to pay off any outstanding debts. When the remains of the estate is distributed to the insured’s heirs, those proceeds may be subject to estate taxes. In contrast, if a beneficiary receives the insured’s death benefit directly from the insurance company, the beneficiary will receive the full amount without debt collection or tax collection.

Many states exempt a specified amount of life insurance death benefits (e.g. up to $50,000) from debt and/or tax collection even after the death benefits are transferred to the insured’s estate, but this depends on the laws in your state.

How an Insured Can Avoid Leaving the Death Benefit to Their Estate

It is in everyone’s best interests that an insured keep their beneficiary designations as up-to-date as possible to avoid probate, debt collection, creating a public record, and possible estate tax.

Designating multiple life insurance beneficiaries such as more than one primary beneficiary or a secondary or contingent beneficiary can provide an effective safeguard in case something happens to a primary beneficiary.

National Beneficiary Lawyer to Help You With Your Life Insurance Claim

Unfortunately, when there is a vague, invalid, or out-of-date beneficiary designation, or if the named beneficiary is deceased, there is frequently litigation over who is rightfully entitled to the policy’s death benefit. This litigation is called a life insurance beneficiary dispute. If the court determines that none of the litigants are rightful beneficiaries, the death benefit goes to the insured’s estate.

If you believe your life insurance claim has been wrongfully denied or that you are entitled to a death benefit that seems to be going to the estate instead, you need the advice of an experienced life insurance beneficiary lawyer. Call us – we get our clients paid!

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What happens to the benefits for a life insurance policy when the beneficiary is deceased?

Is the life insurance beneficiary deceased? What happens if the life insurance beneficiary dies first?

A busy national life insurance attorney will explain what happens if the beneficiary of a life insurance policy is deceased, dies soon after or at the same time as the insured, dies while the claim is under review, or if the beneficiary designation is otherwise invalid.

If a close friend or loved one has died and the named beneficiary of their insurance policy has also died, give us a call. You may be entitled to some or all of the death benefit if you are a secondary beneficiary, a contingent beneficiary, or an heir to the estate of the insured.

Life Insurance Beneficiary Deceased or Out-of-Date Beneficiary Designation

What happens when there is no life insurance beneficiary? If the primary beneficiary of death benefits is deceased or the beneficiary designation is otherwise invalid, there are two possible outcomes: the death benefits will be paid to another beneficiary or other beneficiaries, or the death benefits will be paid to the insured’s estate.

Did the Insured Name Multiple Life Insurance Beneficiaries?

Generally, if there are multiple primary beneficiaries and one dies, the death benefit passes to the remaining living beneficiaries. If the primary beneficiary of a policy is deceased, invalid, or cannot be found, the death benefit will go to a named secondary beneficiary or contingent beneficiary. If there are multiple “co-beneficiaries” on a policy and one of them has passed away, the death benefit will be split among the remaining co-beneficiaries.

The Death Benefits Will Be Paid to the Insured’s Estate if there are No Beneficiaries Available

What if both the primary and secondary beneficiary on a policy are deceased or both designations are invalid? In these cases, the life insurance proceeds are paid to the insured’s estate, which consists of all of their assets and debts upon death.

This may seem fine at first glance because the estate is usually transferred to the deceased’s next of kin by default. However, paying the death benefit to the insured’s estate can be disadvantageous for two reasons.

1. The Death Benefits Will Be Used to Pay Debts of the Insured’s Estate

If the insured was in debt at the time of death, their estate would be used to pay off any outstanding debts. If their estate includes the death benefit, outstanding debts can eat up all or most of the proceeds.

Contrast this with a named beneficiary receiving the death benefit directly. The beneficiary receives the full amount regardless of the insured’s debts.

Many states exempt a specified amount of life insurance death benefits from being subject to debt or tax collection even after being transferred to the insured’s estate, but this depends on the laws in your state. Call us if you have questions about this.

2. The Death Benefits Will be Subject to Estate Tax

A beneficiary receives the death benefit without being subject to taxation. However, If the sole beneficiary to a life insurance policy dies before the insured and the death benefit is paid to the estate, it will be subject to estate taxes.

What Happens in Cases of Simultaneous Death?

“Simultaneous death’ is the term used to refer to instances when the beneficiary dies at the same time as the insured or within 24 hours of the insured’s death.

In cases of simultaneous death, state law will govern whether the death benefit is paid out to a second or contingent beneficiary, to the estate of the insured, or to the estate of the beneficiary.

What Happens When the Beneficiary Dies Soon After the Insured Dies?

Spouses often name each other as beneficiary to their life insurance policies, or one spouse is the beneficiary of the other spouse’s policy. This becomes problematic if a spouse suffers from  “broken-heart syndrome” and passes away a month to two after the other, or when a couple is in a fatal accident together and one dies a week or two after the other.

In either case, the policy pays out to the beneficiary’s estate, is used to pay debts of the estate, and the remainder is distributed to the heirs of the estate. Check with the law in your state, as each state treats this issue differently and there may be additional nuances.

What Happens if the Life Insurance Beneficiary Dies before Claim is Approved?

If a policy’s primary beneficiary is alive at the time of the insured’s death but dies before the claim is processed or paid, the death benefit will be transferred to the beneficiary’s estate rather than the insured’s.

This opens the door to the possibility of the death benefit being absorbed by the beneficiary’s outstanding debts or being subject to estate taxes. Unlike with the insured’s estate, the aforementioned state-by-state exemptions from debt and tax collection do not apply once the benefit is transferred to the beneficiary’s assets.

What Happens if Beneficiary Designation Invalid due to Automatic Revocation?

In some states, an ex-spouse’s beneficiary designation is “automatically revoked” upon divorce. If the beneficiary designation is invalid due to divorce and automatic revocation, then a secondary or contingent beneficiary will receive the death benefit, and if there are none, the benefit will be paid to the insured’s estate.

Keep Your Life Insurance Beneficiary Designation Current

The big takeaway is that it is imperative to keep beneficiary designations as up-to-date as possible. Don’t be left wondering what happens if your beneficiary dies before you or if your beneficiary is out-of-date or otherwise invalid.

You also need to name more than one beneficiary. Life insurance is usually advertised as a “safe” investment, free from taxes and unforeseen deductions. However, if your beneficiary is deceased or cannot be located, or your beneficiary designation is invalid, the death benefit may be treated the same as any other asset and consequently be subject to debt and tax collection.

Designating multiple primary beneficiaries, a secondary beneficiary, or a contingent beneficiary or beneficiaries provides an effective safeguard against the death benefits paying out your estate.

Contact Us if the Named Beneficiary Has Died or the Beneficiary Designation is Invalid

There is much litigation over who is entitled to the death benefit under the circumstances set forth in this article. If you recognized your circumstances in this article and you believe you might be entitled to some or all of the death benefit, or if your life insurance claim was denied, call us for help. We don’t get paid unless and until you do, and your initial case evaluation is free of charge.

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