Are Insurance Proceeds Community Property in Idaho?

by Heather Frances J.D. Google

Idaho courts can equitably split community property – marital property that belongs to both you and your spouse – between both parties when you divorce. If you own a life insurance policy, the court may consider it to be community property subject to division in a divorce decree. Prior to a divorce, if you or your spouse own a life insurance policy with the other party as the beneficiary, community property is not an issue.

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Community Property

Idaho is a community property state, which means that its divorce courts presume all property acquired during your marriage by either you or your spouse is community property. During a divorce, the court will divide that community property equitably between you. Items acquired before your marriage are considered separate property, as are items you received by gift or inheritance during your marriage. Separate property is not generally divisible in a divorce so each spouse will likely keep his own separate property. If your life insurance policy was obtained with community property, the court can divide it; if it is separate property, you get to keep it.

Whole Life vs. Term Life

Whole life insurance has a cash value, like a savings account, but term life insurance has no cash surrender value. Whole life insurance is guaranteed coverage for the policyholder’s entire life, as long as the premiums are paid; the policy can be cashed in before the policyholder dies. Premiums for whole life insurance may be higher, but there is no risk of losing coverage due to age or health conditions. Term life insurance is guaranteed insurance for only a period of time – the specified term of the policy, typically between 15 and 30 years. The proceeds of term life insurance are only paid to the beneficiary listed in the policy and only after the policyholder dies.

Whole Life Insurance

An Idaho court can consider your whole life insurance policy to be community property if you acquired the policy during your marriage and paid the premiums with community funds. So, if you can provide evidence that the policy was purchased prior to the marriage or was paid with separate funds, the policy could be considered separate property. If it is community property, the court can divide it in your divorce. For example, if the cash value of the policy is $10,000, the court can split it between you and your spouse. You might be required to cash in the policy and give your spouse half of the money or you might be able to keep the policy and give your spouse $5,000 in other assets or cash.

Term Life Insurance

Term life insurance can be considered a community property asset if the policyholder dies during a divorce or shortly after. Idaho looks at the last payment made on the policy, called the risk portion of the policy, to determine whether the policy is community or separate. If the last payment was made with separate funds, the entire policy proceeds are separate. If the last payment was made with community funds, the policy proceeds are community property. Since the policy has no value until someone dies, the court won’t typically divide the policy during a divorce.