How Beneficiary Disputes Arise

Life insurance beneficiary disputes occur when there is uncertainty or disagreement about who should receive the death benefit. These situations can be emotionally charged and legally complex, often pitting family members against each other during an already difficult time.

Common Causes of Beneficiary Disputes

  • Outdated beneficiary designations - The policyholder named an ex-spouse or deceased person and never updated it
  • Divorce and remarriage - Questions about whether divorce automatically revoked a former spouse's designation
  • Missing or ambiguous designations - Unclear language about who was intended as beneficiary
  • Undue influence or incapacity - Claims that the policyholder was pressured or lacked mental capacity when making changes
  • Conflicting designations - Different documents (policy, will, divorce decree) name different beneficiaries
  • Multiple claimants - Several people believe they are entitled to the proceeds
  • Slayer rule issues - Questions about whether a beneficiary caused the insured's death

Common Beneficiary Dispute Scenarios

The Ex-Spouse Problem

John named his wife Sarah as beneficiary in 2010. They divorced in 2018, but John never changed the beneficiary. He remarried in 2020 and died in 2024. Both Sarah and his new wife claim the death benefit.

Typical Outcome: This depends heavily on state law. Some states automatically revoke an ex-spouse's beneficiary designation upon divorce. Others (including the federal rule for ERISA plans) honor the written designation regardless of divorce.

The Forgotten Beneficiary

Maria bought life insurance in 1995 and named her mother as beneficiary. Her mother died in 2005, but Maria never updated the designation. Maria dies in 2024, survived by her husband and children.

Typical Outcome: When a named beneficiary predeceases the insured and no contingent beneficiary is named, proceeds typically go to the insured's estate. This subjects the money to probate and potential creditor claims.

The Last-Minute Change

Tom, age 85 with dementia, changes his beneficiary from his children to his new caregiver two weeks before death. The children claim undue influence and lack of mental capacity.

Typical Outcome: The children would need to prove that Tom lacked mental capacity at the time of the change or that the caregiver exerted undue influence. Medical records, witness testimony, and the circumstances of the change are critical.

The ERISA Plan

David's divorce decree required him to maintain his ex-wife as beneficiary on his employer life insurance. He ignored this and named his new wife. He dies without changing it back.

Typical Outcome: Under ERISA (which governs most employer plans), the plan administrator must pay the named beneficiary (the new wife), regardless of the divorce decree. The ex-wife's remedy is against the estate, not the insurance.
California Note

California Probate Code Section 5600 provides that divorce automatically revokes a designation of the former spouse as beneficiary on non-ERISA life insurance policies, unless the policy or divorce decree expressly provides otherwise. This is known as California's "revocation-on-divorce" statute. However, this rule does not apply to ERISA-governed employer plans due to federal preemption.

When the Insurer Files Interpleader

When an insurance company receives competing claims to a death benefit, it often responds by filing an "interpleader" action. This is a lawsuit where the insurer deposits the death benefit with the court and asks the judge to decide who gets it.

How Interpleader Works

  1. The insurer identifies a dispute between potential beneficiaries
  2. The insurer files an interpleader complaint in court
  3. The insurer deposits the policy proceeds with the court
  4. The insurer is typically dismissed from the case (and may be awarded attorney's fees)
  5. The competing claimants litigate their claims against each other
  6. The court determines who is entitled to the funds
Important: You Must Respond

If you are named in an interpleader action, you must respond to the lawsuit within the deadline (typically 20-30 days). Failure to respond can result in a default judgment against you, meaning you lose your claim to the proceeds.

Defending Your Claim in Interpleader

If you are a claimant in an interpleader action, you will need to:

  • File an answer asserting your claim to the proceeds
  • Gather evidence supporting your entitlement (beneficiary forms, policy documents, divorce decrees)
  • Potentially take discovery from the insurer and other claimants
  • Present your case at trial or negotiate a settlement with other claimants

Protecting Your Beneficiary Rights

If You Are the Named Beneficiary

  • File your claim promptly. Being first to file establishes your claim on the record.
  • Provide complete documentation. Submit certified copies of the death certificate, your identification, and any beneficiary designation forms you have.
  • Respond to insurer requests. Cooperate with the insurer's investigation while protecting your interests.
  • Be prepared for challenges. If others may contest your claim, gather evidence supporting the validity of your designation.

If You Are Contesting a Designation

  • Act quickly. Notify the insurer in writing that you are disputing the claim and asserting your own.
  • Gather evidence. Collect documents showing why the current designation is invalid (divorce decrees, evidence of incapacity, proof of undue influence).
  • Consult an attorney. Beneficiary disputes involve complex legal issues and often require litigation.
  • Consider state law. State laws vary significantly on issues like revocation-on-divorce and undue influence.

Documents to Gather

  • The life insurance policy
  • All beneficiary designation forms (including prior versions)
  • Divorce decrees, property settlement agreements
  • The insured's will or trust
  • Medical records (if contesting capacity)
  • Correspondence with the insurer

Special Rules for Employer Plans (ERISA)

If the life insurance policy was provided through an employer, it is likely governed by ERISA (the Employee Retirement Income Security Act). ERISA has special rules that can dramatically affect beneficiary disputes.

Key ERISA Principles

  • Plan documents control. The beneficiary named in the plan's records is generally entitled to the proceeds, regardless of what a will, divorce decree, or other document says.
  • State laws are preempted. State revocation-on-divorce statutes do not apply to ERISA plans. The Supreme Court confirmed this in Egelhoff v. Egelhoff (2001) and Kennedy v. Plan Administrator (2009).
  • Plan administrators decide. The plan administrator (usually the employer or insurer) makes the initial determination of who is entitled to benefits.
California Note

While California's revocation-on-divorce statute (Probate Code Section 5600) does not apply to ERISA plans, California courts have held that an ex-spouse who receives ERISA proceeds in violation of a divorce decree may be sued by the rightful beneficiary to recover the funds. The remedy is against the ex-spouse personally, not against the plan.

The Slayer Rule

Under the "slayer rule" (or "slayer statute"), a beneficiary who intentionally kills the insured is disqualified from receiving the death benefit. This rule exists in virtually every state, though the specifics vary.

Key Points About the Slayer Rule

  • The killing must generally be intentional and unlawful (not self-defense or accident)
  • A criminal conviction is strong evidence but may not be required
  • The civil standard (preponderance of evidence) applies, not "beyond reasonable doubt"
  • If the slayer is disqualified, proceeds typically go to contingent beneficiaries or the estate
  • Minor children of the slayer may still be entitled to proceeds in some circumstances
California Note

California Probate Code Section 252 bars a person who "feloniously and intentionally kills the decedent" from receiving life insurance proceeds. The disqualified killer is treated as having predeceased the insured. A final judgment of conviction is conclusive, but the slayer rule can also be applied without a criminal conviction if the civil standard is met.