Many adults have various insurance policies that pay benefits to certain named individuals, trusts or business entities after the death of the policy holder. If these individuals, trust or business entities are not properly named, then the insurance company may have to file a legal action to determine who should be paid the death benefit. If multiple parties claim right to such death benefit, then the insurance company would have to file a legal action known as a interpleader.
An interpleader is a legal action that originates when a party such as an insurance company holds property or money on behalf of another, but does not know to whom the property or money should be transferred. Most insurance contracts and state laws provide that if an insurance company has to file an interpleader, then it can seek attorneys’ fees and costs to bring such legal action in court. This can reduce the death benefit as the attorneys’ fees and costs of the insurance company may be paid from the property or money that is the subject of the legal action.
If a policy holder can periodically verify the names, addresses and other identifying information of the named beneficiaries for all his or her insurance policies, then an interpleader action may not be necessary. Disputes can arise from simple mistakes that can be avoided such as spelling errors, incorrect names or incorrect address information. It should be noted that despite taking these precautions, there may still be a need for an interpleader, if multiple parties assert their claims to the death benefit for other reasons beyond the reasons stated above. However, policy holders can at least avoid simple mistakes and take steps to reduce the probability of a legal action resulting from actions of the policy holders.