The issue of life insurance is a central point in many divorce actions. If you are considering divorce, you will have to take into account ownership and designated beneficiaries of any life insurance policies. The marital settlement agreement will settle the status of the insurance and set out any requirements for how it should be handled after the court finalizes the decree.
The owner of a life insurance policy is responsible for designating a beneficiary and paying the premiums. The policy can be canceled upon the owner's instruction at any time. The owner also has the right to change beneficiaries. Divorce or legal separation has no effect on life insurance, unless the policy is the subject of stipulations agreed to in the final divorce decree. Thus, divorce does not automatically remove an ex-spouse as a named beneficiary. In addition, a divorce decree may not transfer ownership of insurance.
A divorce decree may stipulate that one spouse maintains a life insurance policy with the other spouse as a beneficiary. If minor children are involved in the divorce, the court may order that the non-custodial parent buy or maintain life insurance with the children as beneficiaries. This is to ensure any support payments that stop with the death of the paying parent are replaced. It is common for divorce settlements to decree the beneficiaries by name along with the minimum amount of the death benefit. The decree may also direct the custodial spouse to maintain life insurance with the children as beneficiaries.
A divorce decree does not nullify the policy, but it may require that if the policy lapses and policy owner dies, the custodial or non-custodial parent (as the case may be) would be entitled to a portion of the estate equal to the death benefit in the lapsed policy. This way, a spouse who allows a policy to lapse despite the stipulation in a marital settlement still makes good on his obligation to provide a monetary benefit in the case of his death.
The divorce decree may also stipulate that life insurance on a former spouse can be canceled if that former spouse remarries or when the children named as beneficiaries reach the age of emancipation and the non-custodial spouse no longer owes child support for them. The decree may also set the terms of successor or "contingent" beneficiaries if the principle beneficiary of the policy dies.