Life Insurance: No Surrender Allowed After a Beneficiary Has Been Designated

Once a beneficiary has been designated, the policyholder of a life insurance policy may not exercise the right of surrender during the term of the policy. 
 

A legal dispute recently erupted in the life insurance industry, highlighting the complexity of the interactions between beneficiaries and policyholders. In this case, the designated beneficiary of a life insurance policy sent a letter to the insurance company expressing their agreement to the provision naming them as the beneficiary. However, the case took an unexpected turn when the policyholder requested a partial surrender of the policy just a few days later.

The central issue revolved around the status of the beneficiary’s acceptance of the policy proceeds. As a reminder, the beneficiary clause in a life insurance policy allows the policyholder to designate the individuals who will receive the death benefit in the event of death. In this context, the policyholder may change the designation at any time, unless the beneficiary has given irrevocable consent. In that case, the beneficiary acquires an exclusive right to the death benefit and becomes a key decision-maker regarding the policy, such as in matters of partial surrenders or changes to the beneficiary clause.

However, the situation quickly became complicated. The beneficiary’s initial acceptance form had not been signed by the policyholder, which led the insurance company to inform the beneficiary that the document was invalid and to request a version signed by both parties.
The problem arose when the policyholder subsequently requested a partial surrender of his policy, without the beneficiary’s acceptance having been formalized. Faced with this situation, the insurance company proceeded to process the surrender request. However, the beneficiary contested the transaction, arguing that it had been carried out without his prior consent, and demanded that it be rescinded. The insurance company, for its part, rejected the request for rescission.

The beneficiary then brought the dispute before the Insurance Ombudsman, an independent body responsible for resolving disputes between policyholders and insurers. Under the terms of Law No. 2007-1775 of December 17, 2007, Article L.132-9 of the Insurance Code stipulates that, once the beneficiary has given consent, the policyholder may not exercise the right of surrender during the term of the contract. This consent must be formalized by an amendment signed by all parties involved.

The Insurance Ombudsman ruled in favor of the insurance company, based on current legislation. In his view, for the acceptance to be valid, it must be approved by the policyholder, who must sign the acceptance document. In this case, given that the acceptance document was not signed by the policyholder and that no corrective action was taken prior to the surrender request, the Ombudsman determined that the policyholder had the right to surrender the policy without the beneficiary’s consent.
This case highlights the importance of clear communication and a precise understanding of legal obligations for all parties involved in life insurance contracts. The legal implications can be complex and often depend on applicable legislation as well as specific contractual provisions.