Hello, this is Attorney Oh Seung-hyun of Cheongchul Law Firm.

A beneficiary is designated when a life insurance policy is taken out, but family relationships often change over time. A former spouse may remain as the beneficiary even after a divorce, the beneficiary may pass away before the insured, or several heirs may clash over who is entitled to the payout. Disputes over death benefits arise far more often than people expect.

In this article, we set out the principles for determining who the beneficiary of a death benefit is, along with actual dispute cases.

Where a Beneficiary Has Been Designated – The Rule and the Exceptions

If There Is a Designated Beneficiary, the Benefit Is Not Part of the Estate

Where a beneficiary is designated in a life insurance contract, the death benefit is treated as the beneficiary's own property. In other words, it is not part of the insured's inherited estate, so the other heirs cannot demand that it be divided according to their shares of inheritance. The beneficiary simply claims the benefit directly from the insurer.

If a Former Spouse Is Still the Beneficiary After Divorce

If the beneficiary is not changed after a divorce, the former spouse will receive the insurance payout. Unless there are special circumstances, the courts give effect to the beneficiary designation as it stands. Once the death benefit has been paid to a former spouse after a divorce, it is very difficult for the children or the current spouse to recover it. Because the policyholder may change the beneficiary at any time while alive, the designation must be checked whenever family relationships change, such as upon divorce or remarriage.

Where the Beneficiary Dies Before the Insured

If the beneficiary dies first and the insured also dies without a new beneficiary having been designated, who receives the insurance payout? In that case, the payout is paid to the heirs of the insured. However, the heirs may also include the heirs of the beneficiary (for example, the spouse of a child who had been the beneficiary), and this gives rise to disputes.

The Supreme Court has held that where the designated beneficiary dies and the policyholder/insured then dies before re-designating a beneficiary, the heirs of the beneficiary who are alive at the time of death receive the insurance payout. In such a case, the heirs of the insured and the heirs of the beneficiary may be different people, which leads to complicated disputes.

Death Benefits and Division of the Inherited Estate – Whether They Count as a Special Benefit

In the course of dividing an inherited estate, where one heir was designated as beneficiary and received the insurance payout, the other heirs sometimes argue that it should be regarded as a "special benefit" and deducted when calculating that heir's share of inheritance. In its decision of June 13, 2024 (대법원 2024.6.13. 결정), the Supreme Court held that where an heir by representation had been designated as the insurance beneficiary before the death of the decedent, the insurance payout received after the death was not received in the capacity of an heir and therefore is not a special benefit. Insurance proceeds received as a beneficiary are, in principle, excluded from the calculation of shares of inheritance.

Where the Beneficiary Is Designated as the "Heirs"

It is also common to designate the beneficiary not as a specific person but as the "statutory heirs." In that case, the insurance payout is paid to the statutory heirs, such as the spouse and children, in accordance with the Civil Code provisions on shares of inheritance (민법). Even so, this payout is likewise treated not as the inherited estate itself but as the beneficiary's own property, and the courts have consistently held that the payout can be received even if the heir has renounced the inheritance.

• Even after renouncing the inheritance, an heir designated as beneficiary can still receive the insurance payout

• However, where the beneficiary is designated as the "heirs," the statutory heirs as of the time of death are the reference point

To Prevent Disputes

• Always re-examine the beneficiary designation whenever family relationships change, such as marriage, divorce, or the birth of a child

• If the beneficiary dies, designate a new beneficiary immediately

• Even if a will separately states how the insurance payout should be handled, it does not override the beneficiary designation

Closing

Death benefits involve large sums, and once a dispute arises it is an emotionally difficult area as well. A single mistake in designating a beneficiary can lead to conflict within the family. If a beneficiary dispute has arisen, or if you need a review as a preventive measure, please request a free consultation with Cheongchul Law Firm.

Thank you.