An insurance agent in Texas changes a beneficiary designation on a life insurance policy at the request of the policyowner, but does not notify the insurer of the change. The policyowner dies shortly thereafter. What is the likely outcome regarding the beneficiary designation?
- AThe death benefit will be paid to the policyowner's estate due to the invalid change.
- BThe change is invalid, and the previous beneficiary on record with the insurer will receive the death benefit.
- CThe insurer will investigate the agent's actions and then decide who receives the benefit.
- DThe change is valid, and the new beneficiary will receive the death benefit.
Show answer & explanationAnswer & explanation
Correct answer: B. The change is invalid, and the previous beneficiary on record with the insurer will receive the death benefit.
For a beneficiary change to be effective, it must typically be recorded by the insurer, or at least notice of the change must be provided to the insurer. An agent, acting on behalf of the policyowner, must ensure the insurer is notified. Without notification to the insurer, the change is generally not effective, and the last beneficiary on record with the insurer will receive the proceeds.
Why the other options are wrong
- A. The estate would typically only receive the benefit if no valid beneficiary were named or if all named beneficiaries predeceased the insured.
- C. While the agent's actions might be investigated for compliance, the insurer's primary liability is to the beneficiary of record.
- D. A change of beneficiary is generally only valid once recorded or acknowledged by the insurer.
Beneficiary Change Effectiveness
A change in beneficiary designation on a life insurance policy is typically effective only when it is recorded by the insurer, or when the insurer receives satisfactory written notice of the change.
- Requires notice to the insurer for validity.
- Agent's knowledge alone is insufficient.
- Insurer's records are paramount.
- Protects against fraudulent or disputed changes.
Memory trick: Change needs to be seen, or it's never been.