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Rules are rules, and insurance companies are all about rules

A life insurance policy can be an important piece of an estate plan. The funds are distributed soon after the insured's death (or soon after the insurance company learns of the insured's death) and are not subject to the probate process or estate tax. And, the beneficiary need not be a person: It can be a trust or a charitable organization, for example.

Because it is a non-probate asset and for other reasons, a life insurance policy cannot be altered in a will. The 8th U.S. Circuit Court of Appeals made that clear in a recent ruling. Texas is not part of the 8th Circuit, but, since the decision does not turn on any particular state law, we thought it worth a discussion.

The plaintiff in the case was a woman whose husband died of cancer in early 2011. A few months before his death, he completed and signed a change of beneficiary form for his life insurance policy. He wanted his wife to have the entire payout.

In fact, he wanted his wife to have his entire estate. His will also made it clear that any life insurance benefits were to go to her.

After the insured died, his wife filed a claim for the life insurance benefit. The claim was denied first by the insurance company -- the insurer denied the claim appeal as well -- and then by a federal court. The last "no" came from the 8th Circuit appellate panel. The denials turned on a basic rule about contracts and a fairly straightforward probate rule.

What were they? We'll explain in our next post.

Source: Courthouse News, "Signed but Never Filed Form Won't Help Widow," Joe Harris, May 12, 2014

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