I had a call the other day from a lady complaining about an insurance company. She complained that the insurance company is not following will that her father wrote.
In the will, father left everything he had to his daughters. He also named the caller lady his executor.
Father also had a life insurance policy. Daughter sent in the death certificate, and asked the insurance company to mail her the money. She told the insurance company that she was going to divide the money among the sisters, as the will said.
The insurance company wrote back and said sorry. They will not send her the money. They will be distributing the money according to the beneficiary designation of the policy.
So, this lady was upset because she thought she should get the money, so that she could split it with her sisters.
But there were a couple of problems with this lady’s plan. One should have been expected, but the other one was a surprise.
Life Insurance Policies Pay According to Beneficiary Designations
When a person buys a life insurance policy, the company requires the owner to designate who the money will go to. This is called a beneficiary designation.
People usually designate their spouse, their children, and/or some other relatives. If a beneficiary dies before the owner dies, then the money goes to the other beneficiaries, or to the owner’s estate. Each insurance policy is unique, and this can vary.
Father listed his daughters as beneficiaries of the policy. However, to these sisters’ surprise, he also listed one of his nephews as a beneficiary.
This nephew had lived with them for a while when they were all teenagers, but he hasn’t had much to do with the family since then. That is probably why the father did not leave him anything in his will.
Unfortunately for the sisters, and fortunately for the nephew, father never updated his beneficiary designations. Even though he owned the policy for about forty years.
This is why you should check your beneficiary designations every year, and make changes, if necessary.
Insurance Proceeds Do Not Pass Through Probate
I then explained to the lady that insurance policy proceeds are not part of a probate estate. Therefore, it does not matter what the will says.*
The insurance company will pay out the policy according to the beneficiary designation. The policy holder can name whoever they want as the beneficiary. They can also designate the percentage that each person will receive.
Insurance Policy Proceeds Are Paid Directly to the Beneficiary
Furthermore, the insurance company will cut a check to each beneficiary. The company will send it to them directly, and not to the executor, the person administering the estate. Therefore, the administrator would not be able to distribute the money according to the terms of the will anyway.*
So the end result for this lady and her sisters was that the insurance company cut a check to each sister and to the nephew, and mailed it directly to them.
If you have a life insurance policy, it is a good idea to check your beneficiary designation periodically. Once a year would be good, when you are going through your annual legal checkup.
* The only exception to this is if there is no beneficiary designated, or if the policy holder designates his estate as the beneficiary.
How Can We Help?
Here at WYeLawyers, we can help you review your beneficiary designations, and help you with drafting a will, or a trust, if appropriate. So take the next step, and schedule a consultation by calling 307-382-5545.
By Steve Harton