Life Insurance Beneficiary Disputes: Who Gets the Payout?

Wills and life insurance policies can significantly impact the families of those who have passed away. Unfortunately, disagreements regarding these important documents can arise, leading to lengthy legal disputes. In particular, beneficiary disputes on life insurance policies are common, and they are often complex, overwhelming, and financially taxing on all parties involved.

One story bringing light to this topic involves a bereaved daughter hoping to collect on her father’s life insurance policy, but is unsure how to challenge her stepmother’s claim on the $80,000 payout.

The original post on MarketWatch details the story of a financially-strapped music teacher whose father recently passed away. “My father named my late mother as a beneficiary on his $80,000 life insurance, but my stepmother says it belongs to her. Who’s right?” the daughter inquires. She then goes on to explain how, initially, it was understood that her father wanted her to be the beneficiary, but he never got around to updating his policy after his first wife died.

This was a fact even the stepmother agreed to at first, but she shortly thereafter changed her story. Correspondence with the insurance company revealed that the funds would instead be paid to the stepmother, leaving nothing for the insured’s daughter. “I’m upset that my stepmother betrayed my dad’s last wishes,” the daughter stated. “I am concerned that she is not following the law regarding settling his estate.”

Is the stepmother following the law?

This is a complex question, and the answer may depend on several factors, including the specific terms in the father’s life insurance policy, as well as relevant state laws. If this happened in North Carolina, the life insurance policy would almost certainly revert to the step-mother as part of the deceased’s estate. It would then go through the probate process, and be divided based on the laws of Intestate Succession.

So yes – the stepmother is likely following the laws. But as with all things, there may be exceptions.

Beneficiary designation and contingencies

Life insurance policies are considered “non-testamentary assets” because the proceeds are not controlled by a will. This means that the proceeds of the policy will go directly to the named beneficiary, regardless of what is stated in a will. When someone purchases life insurance, they are essentially entering into a contract with the insurance company. The owner of the policy has a right to name the beneficiary, as well as contingent beneficiaries, and this designation can be changed at any time.

However, when beneficiaries of an insurance policy pass away or cannot be contacted, and there are no contingent beneficiaries, the proceeds from the policy will typically be paid to the insured’s estate. The estate would then be responsible for distributing the proceeds according to the terms of the insured’s will, or if there is no will, according to the state’s intestacy laws.

Life insurance beneficiary disputes

This case demonstrates why it is so important to keep both wills and insurance policies up-to-date with the latest information, especially with regards to beneficiaries and contingencies. When there is disagreement or confusion over who should receive the proceeds of a life insurance policy, it can lead to lengthy and expensive legal battles.

One of the most common reasons for beneficiary disputes is a change of family circumstances such as marriage, divorce, the birth of a child, or a death, as in the above case. However, if a policy owner neglects to update the beneficiary designation, it will be unclear who is entitled to the benefits. These types of disputes are especially common in cases of blended families or previous marriages.

Other causes of life insurance disputes

When disputes arise over who should receive an insurance policy’s benefits, family members may contest the policy’s validity, question the beneficiary designation, or dispute the amount of the policy proceeds. There are a variety of reasons why family members may dispute life insurance policies, and some of the most common include:

• Lack of clarity in a policy
• Allegations of fraud
• Allegations of undue influence or coercion
• Reduced mental capacity on the part of the policy owner
• Changes in family circumstances
• Multiple potential beneficiaries with competing claims
• Disputes over validity due to cause of death
• Disagreements over the amount or distribution of proceeds

It’s important to note that while life insurance disputes can be difficult to navigate, there are strategies and options available to help resolve these issues. Reach out to the knowledgeable attorneys at Epperson Law Group to find out whether your case is actionable.

Successfully contesting life insurance beneficiary designations

Challenging a life insurance beneficiary designation can be a lengthy and complex process. It typically requires a thorough understanding of the specific laws governing life insurance policies in the relevant jurisdiction. There are many potential avenues one could take when contesting an insurance policy, including those listed in the section above.

But ultimately, the success of a challenge to a beneficiary designation will depend on the specific facts and circumstances of the case. If you have questions or doubts about the designation of insurance proceeds or will assets of your loved one, you may be able to contest the policy or will in question.

In the event of a divorce, make sure you update your will. It will save your loved ones a lot of time later. Epperson Law Group provides these kinds of services to our family law and divorce clients, and can help you assess the value of your estate as well. To set up a consultation, contact us at any of our locations or submit our contact form. We proudly serve areas across North Carolina including Charlotte, Weddington, Concord, and Boone.