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California Life Insurance Beneficiary Laws

Insurance lawThe loss of a loved one, whether sudden or unexpected, can be devastating financially as well as emotionally. Life insurance is intended to provide a cushion and much-needed financial support during this difficult time. With prompt payment of a life insurance benefit, the beneficiaries can make sure the mortgage is paid and groceries are on the table while going through probate or making a plan for the future.

The beneficiary is the person or persons (or other entity) chosen by the policyholder to receive the benefits under the policy. Below we discuss some basic facts about life insurance beneficiaries under California law, including when beneficiaries can be changed, the impact of a divorce on a beneficiary designation, and what happens if the policyholder fails to designate a beneficiary. If you are a beneficiary to a life insurance policy in California and you think the insurance company is acting in bad faith by improperly delaying or denying a valid claim for benefits, contact the Los Angeles law office of Gianelli & Morris to review your situation with a skilled and knowledgeable California insurance law attorney.

Basic Facts About Life Insurance Beneficiaries

The beneficiary on a life insurance policy is the person or entity designated to receive the benefits when the insured passes away. Although typically a family member such as a spouse or child, the beneficiary can also be a legal entity such as a trust or charitable organization. When a trust is named as beneficiary of a life insurance policy, the beneficiary of the trust will receive the proceeds according to the terms of the trust. A person also need not be related to the insured to be named as a beneficiary; California law allows policyholders to designate anyone they want to be a beneficiary. There can additionally be multiple beneficiaries designated to share in the proceeds, and the policy can designate a contingent beneficiary to receive the benefits in the event the primary beneficiary has predeceased the insured. Naming a contingent beneficiary is a recommended practice, although not technically required by law or most insurance policies.

The owner of the policy can also change beneficiaries (primary or contingent) at any time during the life of the policy by notifying the insurance company and complying with their procedures for a change of beneficiary designation.

If no beneficiary is named in the policy, the terms of the policy itself will dictate where the proceeds should go, such as to the insured’s next of kin or into their estate, where it will be distributed according to the insured’s estate plan or California laws of intestacy if the insured left no will. Likewise, if the policy is silent on the issue of no named beneficiary, the benefit will be paid to the estate and distributed accordingly.

Spousal Beneficiaries, Divorce, and California’s Community Property Law

In some states, where a spouse has been named as a beneficiary on a life insurance policy, divorce will automatically (by operation of law) revoke the ex-spouse’s beneficiary designation in favor of a contingent beneficiary or other beneficiary according to the terms of the policy. This is not the case in California, where a former spouse will continue as a valid beneficiary until changed by an affirmative act of the policy owner.

A life insurance policy can be further complicated in divorce by California’s community property laws, which hold that each spouse owns an equal, undivided interest in all assets acquired during the marriage by either party. The value of a whole life insurance policy may therefore be considered marital property with the former spouse entitled to one-half its value in a divorce. This complication will be settled by the parties or the court as part of the property division in the divorce.

The matter becomes even more complex in the case of employer-sponsored group life insurance plans offered to employees as a fringe benefit. These plans are governed by a federal law known as ERISA, and where there is a conflict between California law and federal law regarding an ERISA-governed plan, federal law controls. This means the beneficiary designated on a life insurance policy governed by ERISA would be honored regardless of how it might be treated differently post-divorce or even if the beneficiary is not a spouse but the policy is community property.

Life Insurance Claim Wrongfully Denied? Call the California Bad Faith Insurance Attorneys at Gianelli & Morris for Help

This article only brushes the surface of California insurance law related to beneficiaries and the complications that can arise. To discuss your situation with a California insurance lawyer, contact Gianelli & Morris in Los Angeles at 213-489-1600. Our team excels at helping policyholders get the benefits they are due under a life insurance policy while holding insurers fully accountable for the harm done by bad faith insurance practices, including unreasonable claim delays and denials.

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