2 December 2014 0 Comments

Will Your Life Insurance Proceeds Get To The Right Person?

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Recently I read about a situation where an insured died and their life insurance proceeds did not go to the person who was the intended beneficiary.  It’s a situation where the insured obtained a life insurance policy through his employer’s group plan.  Let’s call him Stan.  In 1991 Stan, a divorcee, named his son as the beneficiary.  Ten years later the insured was married to Susan. In November, 2010 Stan filled out and signed (but never submitted) a beneficiary designation form naming Susan as the policy’s sole beneficiary.  In January, 2011 Stan was diagnosed with a life threatening condition.  He executed a will stating that any life insurance proceeds in his estate be paid to his wife, Susan, but he still did not file the previously completed beneficiary designation form.

Stan died in February, 2011 and when Susan filed a claim form to the insurance company stating that she was the beneficiary, the insurance company indicated that the son was the beneficiary of record.  The insurance company was not attempting to avoid payment of a claim, they just had to make sure the money got to the person legally entitled to it according to the beneficiary instructions in their possession.  Even when Susan showed the company the will that mentions life insurance proceeds should go to her, those instructions only pertained to life insurance proceeds that were in Stan’s estate.  The proceeds of this policy were never in his estate.  The claim was paid to the son.  Susan appealed to the courts for a reversal, but the decision to pay proceeds to the son was upheld.

The lesson, of course, is to make sure that your beneficiary designations on file with the insurance company are current and unambiguous.  Your will or living trust beneficiary designations will not overrule the beneficiary designations you have filed with your insurance companies.  The owner of a life insurance policy can change beneficiary designations at any time that they and the insured are still living, but the change must be filed with the insurance company.  The exceptions to this would be in community property states where the insurance company would also request the signature of a spouse if their interest is being effected—and—if the beneficiary designation is “irrevocable” in which case the beneficiary must also sign such a request.  One beneficiary designation form is required for each policy in force.

Life insurance beneficiary designations are powerful tools to have in your planning process…just make sure they’re used properly!

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