The employer’s benefit plan included group life insurance payable at a flat $50,000 to a designated beneficiary.
An employee under this health benefit plan was going through an acrimonious divorce and completed a change form to update his beneficiary from his spouse to his only dependent child, who was only twelve at the time. The employee did not complete the trustee portion of the form and so no trustee was appointed.
Insurance forms are legally binding documents.
Fast forward three years. The employee has died.
· The ex-spouse tries to file the claim for the $50,000, which is declined.
· The ex-spouse tries to file the claim for the $50,000 as the trustee for the dependent. This too is declined.
· The ex-spouse tries to file the claim on behalf of the minor dependent, for the minor dependent. This is declined.
Now it’s in the hands of the lawyers.
How many lawyers does it take to fight over $50,000? In this case four. One for the ex-spouse, one for the dependent, one representing the estate and a special trustee lawyer working as a bridge of sorts between the estate and the minor beneficiary.
While it may be easy to blame the insurance company and suggest that they just up and pay the money…can they legally do that? I’m no lawyer, but I can’t imagine the fallout of if insurance companies start to bend or take lightly the instructions outlined on legal paperwork.
The money will be paid.
In this case, the insurer is legally bound to pay funds directly to the designated beneficiary who happens to be a minor as instructed, which means in light of no appointed trustee, the insurer will hold onto the money, in trust, until the minor reaches the age of majority.
Case #2, nothing payable despite employer payrolling premium deductions
Elderly dad, still working at age 66 (certainly not uncommon) and is off work due to disability. The employer has a benefit plan with $25,000 of life insurance, which reduces by 50% at age 65 and long term disability which terminate at age 65.
The employer retained the employee on the corporate benefit plan during the absence for the life insurance and the flexible health spending account. The employer paid the life insurance premium to the insurance carrier.
Eight months after leaving work due to the disability, the employee dies.
The employee had three young adult children, an ex-wife, a current spouse, and no individual life insurance. Prior to leaving his employment due to disability, he was eligible for $12,500 of life insurance.
His beneficiary, the eldest of the three children, filed the life insurance claim and was declined.
“…if an employee, aged 65 and over is not actively at work due to disease or injury, their life insurance coverage terminates on the sixth month from the date they ceased to be actively at work.”
Despite the premiums paid (which were reimbursed) the claim was declined as this provision was clearly stated in the benefit policy booklet and contract.
Key takeaways
· Know your benefit coverage
· Understand that insurance forms, even change forms, are legal documents and are binding.
· Read the instructions and ensure your intentions are well documented on the form.
· If appointing a minor, ALWAYS appoint a trustee.
Work with someone who will help you understand your coverage, the potential pitfalls and loopholes.
Let’s have a conversation. Give us a call.
Note: this was written without the aid of Artificial Intelligence (AI)
Disclaimer: Please note that the information provided, while authoritative, is not guaranteed for accuracy and legality. The site is read by a world-wide audience and employment, taxation, legal vary accordingly. Please seek legal, accounting and human resources counsel from qualified professionals to make certain your legal/accounting/compliance interpretation and decisions are correct for your location. This information is for guidance, ideas, and assistance.
