How to Choose Your Beneficiary Whether You are Married or Unmarried
When a married person with children obtains life insurance (whether purchasing it directly or receiving it as a benefit of employment), the usual practice is to designate the spouse as the beneficiary, assuming that any life insurance proceeds would be used to support the surviving spouse – and the children. When an unmarried person with children obtains life insurance, however, it is less clear how to ensure the children’s financial interests are protected. Many people choose to designate as the beneficiary a close relative or a romantic partner (who is not the parent of the children), assuming this person will honor the wishes of the insured and use the insurance proceeds to support the children, especially if any children are under the age of 18.
Based on our experience at Trief & Olk, however, we have seen many cases where this approach ends up with unintended consequences. Rather than giving the money to the children (or their legal guardians, if they are under age 18), the third party who was designated as the beneficiary has decided to keep the insurance money for himself/herself, despite knowing that this result is not what the insured intended. In such situations, there is little the children can do to challenge the result.
What Do Life Insurance Companies Use to Determine Who Should Receive the Proceeds
Life insurance companies base the determination of who should receive the life insurance proceeds on the person formally designated as the beneficiary (or beneficiaries), regardless of what might be expected or what might be indicated in the person’s will. Thus, if the insured’s romantic partner (or former partner) was the designated beneficiary listed on the insurance application, the children cannot argue after the death that the insured really wanted the children to receive the funds.
The fact that one might expect an insured to leave the money to support their children or has provided for the children in their will does not change how the life insurance proceeds are paid out. The life insurance company’s determination will be based on the identity of the designated beneficiary, regardless of how unfair this may seem.
To avoid this unfortunate outcome, the safest practice for unmarried individuals with children is to designate the children directly as beneficiaries. If the insured wants the partner/relative and the children to share the proceeds, they can be designated as joint beneficiaries, splitting the proceeds however the insured would like (such as 50% for the partner and 50% for the child).
If you have a dispute relating to life insurance proceeds, the life insurance attorneys at Trief & Olk are available to answer your questions and represent you if life insurance claim has been denied or is disputed by another purported beneficiary. Feel free to consult our website for examples of the many successes we have had relating to payment of life insurance benefits or call us directly to discuss how we may help you.