Who is entitled to life insurance benefits is not always an easy answer.
The designated beneficiary of a life insurance policy generally is entitled to the proceeds upon the death of the insured. Absent an adverse claim, the insurer may pay the benefits to the designated beneficiary. This is not a difficult concept but is affirmed in the 1967, Texas Supreme Court opinion, McFarland v. Franklin Life Insurance Co. and in the Texas Insurance Code, Section 1103.102.
As is pointed out in the 1968, Texas Supreme Court opinion, McAllen State Bank v. Texas Bank & Trust Co., the insured’s pledge of the policy proceeds may give a creditor rights superior to the named beneficiary.
If the insurance company is faced with rival claims, the insurer may avoid extra-contractual liability by filing an interpleader suit and paying the money into the registry of the court so the issue of who gets the proceeds can be judicially resolved. This is made clear in the McFarland case cited above.
An insured may change the beneficiary designation by substantially complying with whatever requirements the policy imposes. “Substantial compliance” means the te insured did all he reasonably could do to effect the change. This is explained in the 1953, Texas Supreme Court opinion, Creighton v. Barnes. Without substantial compliance, a mere intent to change the beneficiary is not enough. This is discussed in the 1994, Amarillo Court of Appeals opinion, In re Group Life Insurance Proceeds of Mallory.
It is important to point out that the insured must have sufficient mental capacity to effect the change of beneficiary. This is discussed in the 1984, Texas Supreme Court case, Tomlinson v. Jones.
In Tomlinson, the insured’s medical records painted “a grim picture of a man critically injured and in great pain, at times heavily drugged, at times hallucinating, with little possibility of survival.” The physician’s discharge summary prepared by Tommy’s physician after Tommy’s death stated that “in spite of all the medical measures, drugs, respirator, etc., the patient continued his downhill course.” This was sufficient evidence of “physical problems … consistent with mental incapacity,” which supported the jury finding that the insured lacked the mental capacity to change his beneficiary.