If the insurance company says that a death benefit was given to me in error, do I have to return it?

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If the insurance company says that a death benefit was given to me in error, do I have to return it?

A few months ago, a friend of mine received a check from a life insurance company. They said she was the named beneficiary of an annuity, although she did not recognize the name of the deceased. All the company asked was that she verify her name and address. She deposited the check, declared the income and paid taxes on it. Now the company has written her saying they gave her the check in error and demanding that she return the money. Do they have a legal right to do this? Is she due any compensation?

Asked on April 30, 2012 under Estate Planning, Kentucky

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

If your friend received an insurance death benefit in error, under the laws of all states she is required to return it due to the mistake in her receiving it. If she fails to do so, in all likelihood the insurance carrier will bring a lawsuit against her for its return.

For her to have paid income taxes on an insurance death benefit where she was a supposed beneficiary was in error. Under IRS guidelines, the receipt of the insurance payment was a "gift" and is not taxable as income.


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