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Getting remarried or recently divorced? Consider these term insurance implications

Being remarried or divorced does not mean that your ex is now out of your life. If you named that person a sole beneficiary named on a term insurance policy when you were married, they may still receive those funds...even if it is against your wishes

If the deceased insured was either divorced or married then the surviving ex-spouse and/or the surviving spouse may be entitled to a portion of the proceeds even though they are not named as beneficiaries.

Let us consider some examples.

With term insurance, a death benefit is paid only if the insured dies while the policy is in force. Term insurance, unlike whole life insurance, has no cash surrender value.

First, take a married insured person who names a daughter as the sole beneficiary. The final premium was paid by the insured using the insured’s marital earnings – community property.

Unless the surviving spouse consented in writing to allowing the daughter to be named as the beneficiary on the insured’s policy, the surviving spouse is entitled to one-half of the insurance death proceeds.

Why? Because the last insurance premium was paid using community property, the surviving spouse had an undivided one-half interest in the life insurance proceeds.

If instead the last premium were paid using the insured’s own separate property – such as from an inheritance or from assets acquired before the marriage – then the daughter would receive all the death proceeds.

Why? Now the surviving spouse has no community property interest in the insurance policy as the premium was paid by the deceased spouse’s own separate property.

Second, consider an insured spouse who gets divorced but neglects to remove the ex-spouse as the named death beneficiary on a term life insurance policy executed while both were married.

A decree of dissolution does not automatically nullify the right of an ex-spouse to collect as beneficiary on the other ex-spouse’s life insurance policy; this is unlike with other assets where an ex-spouse who was named (during the marriage) as a designated death beneficiary while married is treated as having predeceased the spouse unless the designation is ratified after the dissolution of marriage.

Thus, an ex-spouse may later collect based a death beneficiary form previously executed by the decedent while they were still married.

This can be avoided if either the insured names a new death beneficiary or the decree of dissolution says that the insured’s ex-spouse loses her expectancy in the life insurance policy.

Third, consider an insured person who divorces, remarries, and names the new spouse as a sole beneficiary on a term insurance policy that was renewed after the dissolution of marriage.

Generally, provided the final premium on the term life insurance policy was paid using money unrelated to the prior first marriage then the second spouse as the policy’s sole beneficiary will receive all of the death benefits.

However, if the premiums on the renewed term insurance policy are reduced due to payments that were made from first marriage’s community property then the ex-spouse retains an ongoing community property interest in the renewed life insurance policy.

Thus, unless the dissolution decree says otherwise, the ex-spouse may claim some portion of the death proceeds on the renewed term life insurance even though he or she was not named as a beneficiary and was not even married to the insured at the insured’s death.

In sum, a surviving spouse, or surviving ex-spouse, may have a claim to term insurance proceeds even though he or she was not named as a beneficiary if either community property from their marriage was used to pay the final premium on the term life insurance, or the renewed policy’s premiums were discounted (“capped”) due to payments on the original policy made from community property.

Additional exceptions may also apply.

Contact my office for more information about your personal situation.