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Life insurance provides financial protection for your family after you die. When you get a policy, you list beneficiaries who receive the funds you spend years, or even decades, paying for.

If you’re worried that someone who isn’t listed as a beneficiary in your policy could steal your money — you can rest assured that they won’t be able to unless there are extenuating circumstances. Generally, life insurance companies only pay out to the listed beneficiaries. But, if there is solid proof that you named your beneficiaries under duress, your death benefit can be contested.

Who can take your life insurance money?

Any relatives not listed in your life insurance policy can’t take the life insurance death benefit. Life insurance companies only pay out to the listed beneficiaries — and no one else.

However, if both of your beneficiaries are deceased, then the life insurance funds will be paid to your estate. At this point, it can be taken by creditors or other people entitled to your estate.

When a life insurance beneficiary can be contested

There are protections for life insurance beneficiaries so they are the only ones receiving the death benefit. But, if someone believes they are entitled to a death benefit, they can contest a life insurance beneficiary designation, though the process depends on state law. To contest a beneficiary designation they will be required to show the court one of the following:

  • The deceased lacked the mental capacity to know what they were signing.
  • The deceased was pressured into creating the beneficiary designation.
  • The beneficiary exercised undue influence over the signer, such as limiting outside contacts.
  • The documents were falsified.

Whether or not your case will be heard depends on the state’s laws and governing body.

How to protect your life insurance beneficiaries

You can take steps to protect your life insurance beneficiaries and ensure that the death benefit is only paid out to them. These steps include:

  • Updating your life insurance policy everytime you experience a major life event
  • Documenting any important details about your life insurance policy in a legal document your family will see, like your will
  • Working with your insurer to ensure your policy is up to date and they’ve processed any changes

Additionally, be specific in your policy and ensure you are in the right frame of mind when making any designations. For example, an insurance policy naming “my spouse and children” is a recipe for a feud, especially if there is a remarriage. Instead, you’ll want to be specific and use full names — if the policy is vague, saying phrases such as “my children” without naming them, the benefit will generally be split equally among primary beneficiaries, says ACLI spokesperson Whit Cornman. Names, addresses and Social Security numbers are mandatory.



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Protections from your insurer

Insurers will avoid paying the wrong person at all costs because if they do, there are legal and financial consequences for them.

“If they make a mistake, they can’t get the money back and they’ll end up paying double,” says Steve Weisbart, Chief Executive Officer at WEI Research.

Alongside paying double, they will need to undergo legal processes — and a lot of extra work.

“If there is a dispute over the beneficiaries, insurers often put the benefits in a trust account held by a state court while the court decides the rightful recipients,” says Cornman.

You can rest assured knowing that your insurance company will do everything possible to avoid paying out to the wrong person.

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