Can a Spouse Override a Life Insurance Beneficiary?
A spouse may be able to override a life insurance policy beneficiary and collect the funds from the claim if they live in a community property state.
However, in noncommunity property states, which are the majority of states in the U.S., the spouse may not be able to override the listed beneficiary. In these states, the spouse may not be entitled to any funds paid out by their late spouse’s life insurance policy.
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Understanding Life Insurance Beneficiaries
Several roles are associated with a life insurance policy, such as the insured, the policy owner, and the contingent beneficiary.
- Insured: This is the individual whose life is being insured by the policy. The death benefit is paid out when this person passes away.
- Policy owner: This is the person who purchases and controls the policy. The policy owner is often the insured, but not always.
- Beneficiary: This is the person who receives the proceeds from the policy when the insured passes away.
When a life insurance policy is purchased, the policy owner decides who will be the beneficiary. They may choose anyone who has an insurable interest in the insured’s life, meaning that they will suffer a loss or face financial consequences if the insured should pass away. This could be the spouse, but it does not have to be.
The policy owner may name a primary beneficiary — the first person paid in the event the insured passes—and a secondary beneficiary. A secondary beneficiary is named so that in the event that the primary beneficiary passes away before the insured or they are unable or unwilling to collect the death proceeds, the proceeds would pass automatically to the secondary beneficiary.
How Does Contesting a Life Insurance Beneficiary Work?
When an insured passes away, a loved one may find that they are not the beneficiary listed on the life policy even though they think they are entitled to the death proceeds. When this happens, an individual can contest that they should receive the death benefit instead.
For example, a current spouse may find they are not listed as the beneficiary of their spouse’s policy because the policy was purchased years ago, and the beneficiary was never updated. In a case like this, the spouse would contest the beneficiary by contacting the life insurance company in writing — known as a notice of contest — before the death benefit is paid out.
The life insurance company will then investigate the claim and usually delays paying out any proceeds. The insurer must follow the laws of the state in which the policy is filed.
Suppose the dispute cannot be settled out of court. In that case, the life insurance company files a lawsuit between the listed beneficiary and the individual contesting the claim. When a lawsuit has been filed, it can lead to a lengthy process, and the insurance company usually holds the death proceeds until the dispute is settled.
Situations in Which a Spouse Can Contest a Beneficiary
Anyone can contest the beneficiary of a life insurance policy at any time. However, the likelihood that the dispute will be held up depends on many factors.
If an insured passes away and their current spouse is not the policy beneficiary, the spouse may file a dispute. Other insurances, such as a last-minute beneficiary change, may lead to someone contesting the contingent beneficiary.
Community Property States
A community property state is a state in which spouses are considered joint owners of all assets and debts that were obtained during the marriage. When it comes to life insurance, the state may view the policy as marital property and the spouse may automatically be entitled to some or all of proceeds. These states are the following:
- New Mexico
In these states, a spouse may be entitled to the death benefit depending on the type of policy and when it was purchased.
Term Policies in Community States
For a term policy, the current spouse is entitled to 50% of the death benefit if income earned during the marriage was used to pay the last premium payment of the policy. The other 50% of the death benefit would then pass to the listed beneficiary.
Permanent Policies in Community States
For permanent insurance policies, the amount the spouse is entitled to would depend on how much premium was paid with the communal income during the marriage. If the policy was purchased during the marriage and all the premiums were paid with marital income, the spouse may be entitled to a larger portion of the death benefit than a policy that was purchased and paid for before the marriage.
The Beneficiary is an Ex-Spouse
In the event that someone remarries, they may forget to update the beneficiary of their life policy to their current spouse. This can lead to complications in the future.
Upon the passing of an insured, the proceeds will pass to the primary beneficiary. If that person is an ex-spouse, they may collect the profits. In a community property state, the current spouse may be entitled to some of the proceeds depending on the type of policy and when it was purchased.
However, in noncommunity property states, the current spouse may not be entitled to any proceeds, and the ex-spouse will receive the entire policy payout. If the divorce decree lists that the ex-spouse must remain as a beneficiary, the proceeds will go to the ex-spouse regardless of the state.
Last-Minute Beneficiary Changes
In certain instances, the policyholder may have made a last-minute beneficiary change and removed their current spouse as the beneficiary. In this case, the spouse may contest the beneficiary.
Depending on the situation, the spouse may be entitled to some or all of the death proceeds. If the policyholder changed the beneficiary during a time of diminished capacity (for example, if the policyholder had dementia), the spouse could detest the beneficiary change by contacting the life insurance company in writing.
The life insurance company would then follow the laws of their state to confirm or deny the spouse’s claim.
Improper Beneficiary Change
It may be the case that the policyholder tried to update the beneficiary to their current spouse, and because of missing documentation or a lack of follow-up, the process was not completed. In this case, the spouse will need to notify the insurance company in writing and provide the details associated with the claim.
If the court finds that the policyowner did not complete the beneficiary change, they will likely deny their dispute. However, if the court finds that the policyowner followed the proper steps to complete the beneficiary change and the insurance company failed to complete the change, they may rule in favor of the spouse.
How to Update Your Beneficiary
While a beneficiary is named at the time that the policy is purchased, most policies will allow the policyholder to change the beneficiary at any time. The following steps should be taken to update a life insurance beneficiary:
- Locate the policy. The life insurance policy will have the company’s contact information as well as how to change the beneficiary.
- Contact the life insurance company. The life insurance company will either submit a change of beneficiary or provide the policyholder with the correct forms to make the change.
- Return all forms to the company. Contacting the life insurance company to change the beneficiary is not the only step needed to make the change successful. It is important to fill out and return all forms in a timely manner. Note that some forms may need to be witnessed or notarized to be valid.
- Ensure that the change is completed. A confirmation letter or notice should be mailed to the policyholder to confirm the change. A policyholder may also call the company to confirm that the change has been completed.
Understanding Irrevocable Beneficiaries
Most of the time, a policyowner can change the beneficiary, but there are certain instances where it cannot be altered. An irrevocable beneficiary refers to a beneficiary that cannot be changed in the future unless the beneficiary agrees in writing to forfeit the money. Policyholders often name children as irrevocable beneficiaries to ensure they will receive the death benefit no matter what.
If an irrevocable beneficiary is listed on a policy, the likelihood of a spouse overriding the beneficiary decreases especially in noncommunity property states.
Can a Will Override a Life Insurance Beneficiary?
Oftentimes, an individual will leave behind a will to decide how their estate and assets are distributed. While a will provides the wishes of the deceased’s estate, it does not override a life insurance beneficiary.
In most situations, the beneficiary will be able to claim their benefit despite what the will says. A possible exception to this is if the named beneficiaries pass away before the policyholder does and no other contingencies were listed. In that case, the funds would go to the estate and be dispersed per the will.
Putting It Together
While a spouse may be able to override a life insurance beneficiary in certain situations, it is not guaranteed. Furthermore, they may not receive the full amount of the life insurance payout. Either way, contesting a life insurance policy can be a long process, and the spouse may be waiting for months while the dispute is settled before they see any funds.
The best way to ensure that a spouse receives the life insurance payout is for the policyowner to update the life insurance policy when the insured remarries. This will allow for simplicity when the insured passes away and ensure the correct person receives the payout.