A life insurance policy is a contract between the insurance company and the owner of the policy. This contract outlines rules about naming, changing, or removing beneficiaries. A beneficiary is a person who is named in this contract as a recipient of the life insurance proceeds in the event of the insured person’s death. The beneficiary may be a spouse, a relative, a minor child, an adult child, a friend, a trust, etc. Usually, the owner of the policy may name any person or entity as the beneficiary.
Can a spouse change the beneficiary on a life insurance policy? Is the spouse legally entitled to the insurance money? Many people wonder whether there is a special set of rules applicable to life insurance beneficiaries. You may also wonder whether spousal rights are the same as beneficiary rights. This article will address these and many other topics about spousal and beneficiary rights.
Is the Spouse Automatically the Beneficiary of the Life Insurance Policy?
Usually, there is no requirement in the policy itself that a spouse be automatically named as the beneficiary of a life insurance policy. The insured has the right to choose any beneficiary they wish. Likewise, the policy owner has the right to change their designation. However, if the policy owner chooses to name their beneficiary as irrevocable (versus revocable), he or she will not be able to later remove or modify this designation. Revocable designations, on the other hand, are easily changed. To be valid, a beneficiary change or designation must be made according to the rules outlined in the life insurance policy itself and must be received, approved, and recorded by the insurance company.
Another scenario where the policy owner may be restricted in choosing the beneficiary is when there is a court order, such as a divorce decree, that obligates the policy owner to name a specific person as the beneficiary. For example, if the divorce decree obligates the husband to carry a private life insurance policy in the amount of $250,000 for the benefit of his children, the husband will not be able to remove the children as beneficiaries and name someone else. This restriction, however, does not automatically apply to such policies as SGLI, VGLI, and FEGLI. The person who is planning to enforce such a divorce obligation needs to make sure that the insurance company is put on notice and that the designation is irrevocable.
A life insurance policy also sets out rules about what happens when there is no named beneficiary. In many policies, the surviving spouse automatically receives the life insurance proceeds when no beneficiary is named at the time of the insured’s death. In others, the money goes to the estate of the insured. It is common for the insurance company to outline the order of precedence that governs who has the right to collect the proceeds when there is no beneficiary.
If the choice is revocable, the policyholder can name their spouse as a life insurance beneficiary and later remove them and designate someone else, such as their children or a sibling.
Can a Spouse Override a Beneficiary on a Life Insurance Policy?
There is no short answer to this question. It all depends on the type of life insurance policy, the state where it was issued, the state where the couple lived, and the way the premiums were paid. For example, in community property states, certain types of life insurance policies may be considered community property if couples use community funds to pay for them. There are exceptions to these rules and is it always wise to consult a life insurance attorney.
In community property states, life insurance policies might be considered community property, meaning half of the death proceeds could end up with the surviving spouse, even if there is a designated beneficiary. Those states are:
- New Mexico
In Alaska and Tennessee, adhering to community property laws is optional. If you live in a community property state, community property laws may trump beneficiary designation on a life insurance policy under certain circumstances. Since both spouses have an equal share of any income earned during the marriage, they also equally own any property purchased with that money during marriage.
If a life insurance policy was purchased with community property income (if premiums were paid using community property money), the surviving spouse may file a life insurance claim for half or a portion of the policy proceeds if someone other than the spouse is listed as the beneficiary. The beneficiary will receive the rest.
Are Life Insurance Policies Marital Property?
It depends on the state laws that control the policy and if the policy is subject to federal, state, or community property law. Because many life insurance policies, particularly whole life and universal life policies, accumulate cash value, these policies may be counted as marital assets.
Community property law may not apply if the decedent obtained his or her life insurance through work. Group benefit plans are often subject to ERISA (the Employee Retirement Income Security Act of 1974). ERISA is a federal law that preempts state laws, such as community property state laws. This means that unless the surviving spouse is listed as the beneficiary of the employer-sponsored life insurance policy, she or he may not be entitled to half of the death benefit. You can learn more about this from our blog post on ERISA preemption.
Can Spouses in Community Property States Waive Rights to Life Insurance Benefits?
If a spouse wishes to waive his or her right to a certain life insurance policy, the couple may sign an agreement specifying that the policy will be considered separate (not community) property. Usually, the insurance company needs to be put on notice of such a waiver of spousal rights. In some cases, the insurance company may ask the spouse who wishes to waive his or her rights to sign a consent form. In order to be valid, agreements waiving spousal rights must comply with state law requirements.
What Happens When the Insured Forgets to Remove an Ex-Spouse as the Beneficiary?
When a couple goes through divorce, it is ideal to discuss life insurance policies as part of the property settlement agreement. In this case, the policy is included in the divorce decree, the insurance company is notified of the divorce agreement, and both parties are clear as to what happens in the event of the insured’s death. If, however, a life insurance policy is not part of the divorce decree and the insured spouse forgets to remove his or her ex-spouse as the beneficiary, conflict often arises as to who is entitled to get the life insurance benefit after the insured’s death.
Under many state laws, an ex-spouse is automatically revoked as a beneficiary of a life insurance policy unless the ex-spouse is able to show that there was a written agreement to keep him or her as the beneficiary in spite of the divorce. Not all life insurance policies fall under these revocation laws. For example, life insurance policies controlled by federal laws will pay to the listed beneficiary regardless of conflicting state laws.
What happens if a couple divorces and decides to keep each other as beneficiaries on their policies without executing a written agreement and without putting the insurance company on notice of such a verbal agreement? Such cases are extremely complicated, and the insurance company will most likely have to file an interpleader and let the court decide whether a verbal agreement is sufficient to take the case out of the state law revocation requirement.
Learn more about life insurance claim for benefits and divorce.
When to Hire a Life Insurance Lawyer
There are many aspects to beneficiary and spousal rights. They vary not only from state to state but also from case to case. Every situation is unique, and the general rules outlined above may not apply to your specific situation. If you’re not sure about your rights or have questions about the process, speak with our life insurance attorney about your options. We collect life insurance claims fast and work with our clients through difficult times involving family disputes, beneficiary contests, denied life insurance claims, delayed life insurance claims, and interpleader actions.
Read this case where we recovered the benefits for an ex-spouse whose benefits were wrongfully denied.
If you wish to know more about life insurance beneficiary rules or if you or someone you know has issues with a denied life insurance claim, call us at (888) 510-2212 for a free consultation with one of our lawyers.
If you are the beneficiary of an employer-sponsored life insurance plan, read our blog post about ERISA life insurance beneficiary designation to learn more about your spousal rights to death benefits.