UPDATED: Jul 24, 2011

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Written By: Laura BerryReviewed By: Daniel WalkerUPDATED: Jul 24, 2011Fact Checked

Once a beneficiary is named on a life insurance policy, the general rule is that only the owner of the policy can change who receives the proceeds. This rule is in place to protect insurance policy owners from someone else changing the beneficiary without their knowledge.

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However, there are certain cases where a court will order a beneficiary changed for legal reasons. This does not happen very often; courts are reluctant to take this step unless there is a very good basis for the change. There are, however, a few causes that will move a court to enter this type of judgment.

What if the owner becomes legally incapacitated?

If the owner of a policy becomes legally incapacitated, whether by an accident or disease, and if there is no power of attorney named, a court may decide that a power of attorney must be granted to handle the sick person’s business affairs. This has little to do with life insurance; instead, it is to allow the power of attorney agent to continue to pay bills, satisfy legal obligations, and generally act in the interest of the person who is unable to do so. However, if the incapacitated person has a life insurance policy, and the beneficiary is deceased or there are sound reasons for wanting to change the status of the payout, then the power of attorney agent may be granted the permission to name a different person as beneficiary.

The court may directly order a beneficiary to be changed, as well, even if there is not a power of attorney involved. Part of the court’s decision depends on the type of beneficiary named in the policy.

What about life insurance policies with irrevocable beneficiaries?

Some policies have irrevocable beneficiaries. This means that once the beneficiary is named, it is nearly impossible to have another person named unless a judge so rules. Obviously, this type of case involves a protracted legal battle, and it is primarily up to the judge to decide if the reasons for overriding the irrevocable beneficiary clause are valid.

However, if the beneficiary is revocable, meaning the name can be changed at any time by the owner of the policy, a court may be more inclined to become involved. There are some predictable scenarios where a judge might decide that a beneficiary should be changed because the owner would have wanted the change made, or it would be in the owner’s best interest to have the beneficiary changed.

For example, if the owner of a policy is in the process of a divorce just prior to death, and neglects to change the beneficiary from the former spouse, the children or other family members may petition the court to have the beneficiary changed from the ex-spouse. Divorce and marriage do not affect a life insurance policy per se; however, evidence may be presented to the court that the owner intended to change the beneficiary before death, and the court may consider this when making a decision.

Obviously, there is no standard decision in a case such as this. The judge will have to look at the facts of the case, listen to witness testimony, and review any documents which may be presented to show the deceased’s intentions.

What if a life insurance policy was changed shortly before a person’s death?

Another scenario which may result in a judge intervening is when an insured changes his or her beneficiary just prior to death, under the influence of someone else, while the insured is very ill. There have been cases where courts ordered that life insurance proceeds be paid to family members even though the insured changed the beneficiary to a friend or someone unrelated just prior to death, because the judge believed the friend had unduly influenced the sick person to  change the insurance policy. These situations involve long, drawn-out legal battles and tremendous costs. It may actually cost more to fight a case of this type than the face value of the policy, so avoiding situations like this is the goal, not fighting these battles in court.

When taking out an insurance policy, it is important to name beneficiaries in such a way that there is no question as to the intent of the insured. Most often, spouses and children are named in some proportion, although minor children’s shares must be held in trust until they reach legal age. If divorce or death intervenes, it is important to change the beneficiaries in a timely manner to reflect the new situation. If the owner of a policy wishes to make changes, it is also important to talk to an agent and sign the change in the presence of witnesses, in case there is ever any question about the validity of the choice of beneficiary. It is often possible to name secondary or tertiary beneficiaries, and this practice also helps prevent court disputes in case the insured and the primary beneficiary die at close to the same time.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Written by Laura Berry
Former Insurance Agent Laura Berry

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Car Insurance Agent Daniel Walker