Life Insurance & Annuities Forum

Aug. 17, 2007

My son died of a drug overdose while living with a woman to whom he was not married. They had a 2-year-old son that is listed as the beneficiary of his life insurance policy. I spoke with the mother and she says she was told there is a problem because of the way my son died.

She said that it is the same as if he was shot robbing a gas station, and that the insurance company would not pay. Under these circumstances will the insurance company pay? Will the mother collect even though my grandson is the beneficiary, and do I have any recourse?

Marion, Illinois

The policy should still pay the death benefit.

In general, as long as the insured person was truthful on the insurance application, the insurance company should pay the death benefit regardless of how the person dies, says Jack Dolan of the American Council of Life Insurers. The situations where problems could arise are: if the insured lied on the application; if the insurance company believes that he lied; or if the insurer believes his death was an attempt to commit suicide.

If the policy is less than two years old, the insurance company may be able to deny a claim under the standard "contestability law" if:

• They believe your son was a drug user before he applied for insurance.
• They believe he took the drug overdose in an attempt to commit suicide.

In either of these cases, it would be up to the insurance company to prove its allegations, but if the allegations were correct, the insurer would be able to deny the claim.

If the policy is more than two years old, the contestability period has ended, so suicide could no longer be a reason for denial. The only way for the insurer to deny the claim would be to prove that your son had committed fraud on his application.

The fact that your son named a minor as his beneficiary raises some additional difficulties, says Dolan. A minor is not legally competent to receive payment. Because of this, insurers will generally not make payment of any substantial amount directly to a minor, and will generally make the payment to a guardian. You should consult a lawyer or legal expert as to what rights that guardian would have over the money from a life insurance policy or if you want to challenge the mother's guardianship.

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Disclaimer: We are journalists, not financial planners or insurance brokers. Nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.