Life insurance is an important part of every family’s financial plan. Families need the right kind of life insurance (term, whole life, universal life, etc.). They also need enough coverage to replace the policyholder’s income if he or she dies. There is another decision to which families may not give much thought: Who will receive the insurance benefits at the time of a claim.
In many cases, the beneficiary will be the person’s spouse. However, there can be situations where the policyholder wants the proceeds to go to more than one family member. In such a situation, it is essential that the policyholder give clear instructions to the insurance agent and company. A widow in Iowa learned this lesson too late.
Mr. Pitts assumed an obligation to provide $35,000 of life insurance payable to his two year-old daughter as part of his child support obligation. This obligation was to last until the girl turned 18 or finished her schooling, whichever came later. Four years after the divorce, he remarried. The new couple met with an insurance agent to discuss buying life insurance that would both fulfill his child support obligation and provide benefits for Mrs. Pitts. They bought a policy. Over the next three years, Mr. Pitts designated beneficiaries three times.
Initially, the daughter was to receive $50,000 and the wife was to receive any leftover proceeds. Two years later, he submitted a new form which assigned $35,000 to his daughter and the balance to his wife. Eight months after that, he submitted another beneficiary change, but the form was illegible.
After the girl’s 18th birthday, Mr. Pitts allegedly asked the agent to change the beneficiary again so that she would not receive any of the proceeds. Mrs. Pitts said that she believed her husband completed the necessary paperwork, but she was unsure what he did with it. However, she also said that the insurance agent told her husband and her in separate conversations that the daughter was no longer a beneficiary under the policy.
Following the death of Mr. Pitts two years later, his widow filed a claim for the entire $108,000 proceeds from the policy. She was informed that the daughter would receive $35,000 and she would receive the rest. She sued the agent and the insurance company. Five years after her husband’s death, the case had gone through three levels of state courts and was still tangled up in legal proceedings.
Because Mr. Pitts did not give clear written instructions to his insurance agent, his wife spent years in court trying to obtain her expected benefits. He may well have intended for her to receive all of the proceeds, but his failure to submit the paperwork prevented that from happening. This case illustrates the importance of documenting instructions to an insurance agent or company. It also shows that policyholders should review their policies to ensure that they are accurate. It is not enough to take someone’s word for it.
This mistake created needless financial difficulty and heartache for a woman who lost her husband. All insurance buyers should learn from her experience and make sure they give clear instructions