The Electronic Commerce Act And Life Insurance Beneficiary Designation

May 30, 2012

The introduction of the Electronic Commerce Act has been important in addressing advances in technology and the ever-growing reliance on electronic communication. It is now possible to enter into contracts that are entirely electronic. As a side note, the Act does not apply to the following documents:

  1. wills and codicils;
  2. trusts created by wills and codicils;
  3. powers of attorney for personal care and for property;
  4. negotiable instruments;
  5. documents that are prescribed or belong to a prescribed class; and
  6. documents of title (excluding contracts for the carriage of goods).

One area where the Electronic Commerce Act may have a large impact is in life insurance – in particular, in designating beneficiaries under a life insurance policy. As life circumstances change, it is customary to want to change one’s beneficiary designation. People frequently attempt to do this in a will or a Separation Agreement; however, they are often unsuccessful in doing so and the original beneficiary remains entitled to the insurance proceeds. E-mails are now becoming a common way for insureds to change or cancel beneficiary designations.

Once a beneficiary is designated in a life insurance policy, that designation continues unless and until it is changed. In order to properly change a beneficiary designation, the Insurance Act has very clear requirements that must be followed. There must be:

  1. a written declaration
  2. signed by the insured
  3. that identifies or describes the life insurance policy to which it relates.

The declaration does not need to be in any particular form. It may even be a statement or clause in a will or a contract and is not necessarily ineffective simply because the document itself is invalid.

An E-mail message to an insurance company satisfies the requirement that the declaration be in writing. The E-mail will constitute a proper declaration if it contains an electronic signature. The electronic signature must be reliable with respect to identifying the insured and being connected to the E-mail. Additionally, the electronic signature must meet any set requirements or information technology standards. (None currently exist in law for these purposes.)

The requirement that a declaration be in writing is particularly significant. Courts will not speculate what an insured, once deceased, may have intended to do or may have thought that he or she had done. The courts look at the words actually used and the action actually taken by the insured.

Furthermore, the insurance policy must be clearly identified. Changes in beneficiary designations have been invalidated in the following situations due to a failure to properly identify the insurance policy:

  • where a husband failed to properly identify or describe the insurance contract in the Separation Agreement;
  • where a deceased referenced an insurance policy in an affidavit, but did not make it clear what insurance policy he was referring to; and
  • where a deceased failed to properly identify each of the multiple insurance policies that he listed in his will.

In rare cases, a court may be willing to ignore the rules to achieve a fair result. However, you cannot count on that, so it is important to get it right the first time. If you intend to send an E-mail to your insurance company to change your beneficiary designation, ensure that the E-mail includes, at a minimum:

  1. the name of the insurance company;
  2. the Policy Number;
  3. the name of the new beneficiary; and
  4. your name and signature.

If you intend to change your insurance policy beneficiary through your will, most lawyers include it in your basic estate planning for no additional charge, so there is no need to struggle with it yourself. After all, it is always more expensive trying to repair an estate problem than getting it right the first time.