Michigan life insurance beneficiary laws send the death benefit directly to whoever is named on the policy, outside of probate, but several Michigan statutes and one powerful federal law can change that result. Divorce can wipe out an ex-spouse’s designation automatically on an individually owned policy, yet leave the same ex-spouse in place on an employer plan. Minors cannot collect directly. A killer cannot collect at all. And naming the wrong backup, or no backup, can throw the money into probate when the whole point of a beneficiary designation was to keep it out.
Who You Can Name, and Why a Backup Matters
Michigan’s Insurance Code lets a policyholder name almost anyone: a spouse, child, friend, trust, charity, or business entity. MCL 500.2207 specifically authorizes spouses to insure each other, parents to insure their own lives for their children, and policyholders to designate successor beneficiaries who take over if the first beneficiary dies first.1Michigan Legislature. MCL 500.2207 The designation has to be documented in the policy or on the insurer’s beneficiary form.
Name at least one contingent beneficiary. If your primary beneficiary dies before you and there is no backup, the death benefit usually falls into your estate, which drags it through probate and sends it out under your will or Michigan’s intestacy rules instead of straight to the person you had in mind.
Per Stirpes vs. Per Capita
When you name more than one beneficiary, the distribution method decides what happens if one of them predeceases you. “Per capita” splits the proceeds equally among the survivors only. If one of three children dies before you, the other two split everything and the deceased child’s children get nothing. “Per stirpes” keeps each branch intact: the deceased child’s share drops down to that child’s own children. Insurers typically offer both options on the form, and checking the wrong box can disinherit grandchildren you meant to protect.
Trusts as Beneficiaries
Naming a trust lets you control how and when the money gets paid out: gradual releases, specific purposes like education or housing, or management by a professional trustee. That matters most when the people you want to benefit are young, financially inexperienced, or receiving needs-based public benefits that a lump sum could disrupt. The trust has to exist when you die; if it doesn’t, the designation fails.
Minor Children Cannot Collect Directly
Insurance companies will not pay a death benefit directly to a minor. When a minor is named and the proceeds exceed $5,000, the probate court generally has to appoint a conservator, who in some counties files a bond and then submits annual accountings until the child reaches adulthood. The simplest way around this is to create a trust for the child and name the trust as beneficiary.
What Divorce Does to Your Designation
Divorce in Michigan automatically revokes a former spouse’s beneficiary designation on a life insurance policy. Under MCL 700.2807, when a marriage ends in divorce or annulment, any revocable designation of the former spouse in a “governing instrument” is revoked by operation of law, and Michigan’s Estates and Protected Individuals Code defines governing instrument to include life insurance and annuity policies.2Michigan Legislature. MCL 700.2807 The revocation reaches the former spouse’s relatives too, so a designation naming an ex-mother-in-law disappears as well.
Two exceptions matter. First, if a divorce decree or settlement agreement requires one spouse to keep a policy in place for the other, often to secure child support or alimony, that order controls over the automatic revocation. The statute itself carves out “the express terms of a governing instrument, court order, or contract relating to the division of the marital estate.”2Michigan Legislature. MCL 700.2807 Second, and much more consequential, the automatic revocation often does not apply at all to employer-sponsored policies.
Why Employer-Sponsored Policies Are the Big Trap
If your life insurance comes through your employer’s benefit plan, it is almost certainly governed by the federal Employee Retirement Income Security Act, and ERISA overrides Michigan’s divorce revocation statute. The U.S. Supreme Court decided this in Egelhoff v. Egelhoff, holding that a state law automatically revoking a former spouse’s beneficiary designation upon divorce is preempted by ERISA when the policy is part of an employer-sponsored plan.3Legal Information Institute (LII) at Cornell Law School. Egelhoff v. Egelhoff ERISA requires plan administrators to pay benefits to whoever the plan documents identify as the beneficiary.4Office of the Law Revision Counsel. 29 U.S. Code 1104 – Fiduciary Duties If your ex-spouse is still listed on your employer plan when you die, the plan pays the ex-spouse, no matter what MCL 700.2807 says.
Michigan’s Supreme Court created a partial workaround in Sweebe v. Sweebe. The court held that while the plan administrator must pay the named beneficiary as ERISA requires, that beneficiary can be found to have waived the right to keep the proceeds if the divorce judgment included such a waiver.5FindLaw. Sweebe v. Sweebe (2006) The money still goes to the ex-spouse first, and the estate or intended beneficiary then has to sue to get it back. That path is expensive and uncertain. The real fix is to update the beneficiary designation on every employer-sponsored policy immediately after a divorce. Do not rely on Michigan’s automatic revocation.
Changing a Beneficiary
Changing a beneficiary on a standard individual policy is usually simple: contact the insurer, complete a beneficiary change form, and submit it. The change takes effect when the insurer processes it. No Michigan statute dictates the procedure for individual policies; the policy contract and the insurer’s administrative rules govern.
That simplicity disappears with an irrevocable designation. An irrevocable beneficiary has a locked-in right to the proceeds and cannot be removed or replaced without written consent. Irrevocable designations show up in divorce settlements and business arrangements. If you are not sure which type you have, check the policy. The default for most individual policies is revocable.
Disputes tend to cluster around beneficiary changes made close to death. Michigan courts apply a strict standard for undue influence: the challenger must show the policyholder was subjected to threats, fraud, or pressure severe enough to overpower free will and force action against the policyholder’s own wishes. Mere motive or opportunity to influence, without evidence it was actually used, is not enough.6Justia. Metropolitan Life Insurance Company v. Kelly et al, No. 2:2016cv12544 – Document 44 (E.D. Mich. 2017) Dated forms and written confirmation from the insurer are the strongest defense against a later challenge.
The Slayer Rule
Michigan law blocks anyone who feloniously and intentionally kills the insured from collecting the proceeds. Under MCL 700.2803, a person convicted of murder, or of abuse, neglect, or exploitation resulting in the insured’s death, forfeits all benefits. The statute treats the killer as if they had disclaimed, so the proceeds pass to the next eligible beneficiary or to the estate. Michigan’s definition of “governing instrument” in MCL 700.1104(m) expressly includes life insurance, so the rule covers insurance the same way it covers wills and trusts.
Federal courts, including the Sixth Circuit covering Michigan, have applied the common-law slayer rule to employer-sponsored policies even though ERISA itself contains no slayer provision, reasoning that paying a murderer would produce a result Congress could not have intended.
Creditor Protection for the Proceeds
Michigan gives life insurance proceeds strong protection from the insured’s creditors. Under MCL 500.2207, when a policy is payable to a spouse, child, or a trustee for their benefit, the proceeds and even the cash value of the policy are exempt from execution or any liability to a creditor of the insured.1Michigan Legislature. MCL 500.2207 The protection applies regardless of when the policy was issued and regardless of whether the beneficiary was named originally, changed later, or assigned the designation.
The exception is fraud. If the policy was transferred with the intent to defraud creditors, the exemption does not apply, so a large policy purchased and funneled to a spouse specifically to shelter assets from known debts will not be protected. Outside that fraud scenario, Michigan’s protection is broad, and it generally follows the proceeds to the beneficiary after payout.
Taxes on the Death Benefit
Beneficiaries generally owe no federal income tax on a life insurance death benefit. Under 26 U.S.C. § 101(a), amounts received under a life insurance contract paid by reason of the insured’s death are excluded from gross income, whether paid in a lump sum or in installments.7Office of the Law Revision Counsel. 26 U.S. Code 101 – Certain Death Benefits
Three situations change that:
- Interest on delayed payouts. If the insurer holds the proceeds and pays interest before distributing them, that interest is taxable income you have to report.8Internal Revenue Service. Life Insurance and Disability Insurance Proceeds
- Transfer for value. If the policy was transferred to you for cash or other valuable consideration rather than by gift or inheritance, the income tax exclusion is limited to what you paid plus any premiums you contributed after the transfer.7Office of the Law Revision Counsel. 26 U.S. Code 101 – Certain Death Benefits
- Employer-owned policies. Special rules apply when an employer owns a policy on an employee’s life, and proceeds may be partly taxable unless specific notice and consent requirements were met before the policy was issued.
Estate tax is a separate question. Under IRC § 2042, the full death benefit is added to the policyholder’s taxable estate if the proceeds are payable to the executor or if the policyholder held any “incidents of ownership” at death, such as the right to change beneficiaries, borrow against the policy, or cancel it.9Office of the Law Revision Counsel. 26 U.S. Code 2042 – Proceeds of Life Insurance The federal estate tax exemption is $15,000,000 per person for 2026, so this only matters for very large estates.10Internal Revenue Service. What’s New – Estate and Gift Tax Policyholders approaching that threshold sometimes transfer ownership of the policy to an irrevocable life insurance trust to pull it out of the taxable estate.
Filing the Claim
As the beneficiary, you will usually need a claim form from the insurer, a certified copy of the insured’s death certificate, and your own identification. Some insurers ask for the original policy document, but most will proceed with just the policy number. Call the claims department or check the insurer’s website for the specific list.
Order several certified death certificates, because banks, lenders, and other institutions will also want them. Michigan charges $34 for the first certified copy and less for additional copies ordered at the same time. Most insurers accept a certified copy rather than an original. Michigan law requires the insurer to act on a complete claim within a reasonable time, and straightforward uncontested claims typically pay within 30 to 60 days.
When a Will and a Beneficiary Form Say Different Things
The beneficiary designation wins. Life insurance is a contract, and the insurer pays according to the contract’s terms, not according to the policyholder’s will. If the will leaves “all my life insurance to my sister” but the policy still names a cousin, the cousin collects.
When an insurer faces competing claims and cannot tell who is right, it will often file an interpleader action, deposit the proceeds with the court, and let the claimants fight. That is what happened in Metropolitan Life Insurance Company v. Kelly, where the policyholder had changed the beneficiary several times in the years before his death, and the court had to apply Michigan’s strict undue-influence standard to decide which change controlled.6Justia. Metropolitan Life Insurance Company v. Kelly et al, No. 2:2016cv12544 – Document 44 (E.D. Mich. 2017)
Review your beneficiary designations at least once a year and after every major life event: marriage, divorce, birth, death, or a change in employer. Keep copies of every form you submit. Get written confirmation from the insurer that the change was received and recorded. Ambiguity in the paperwork is what creates lawsuits, and clear documentation is what prevents them.