Divorce & Distribution of Life Insurance Benefits

By Heather Frances J.D.

Life insurance needs often change with divorce. Depending on the type of insurance, the life insurance policy can even be divided as marital property in your divorce decree. If you choose to list your ex-spouse or your child as the beneficiary of your policy after your divorce, make sure the beneficiary designation is in accordance with your state’s laws to avoid unintended results.

Life Insurance as Property

There are two major types of life insurance policies: whole life and term life. Term life insurance policies are only good for a certain period of time (the “term”) and only if you continue to make payments during that period. Whole life policies are good for your entire life as long as you keep up with the payments, and the whole life policy can be cashed in before the insured person’s death. Consequently, whole life policies may be treated as marital property in a divorce, subject to division by the divorce court. Life insurance is often addressed by the marital settlement agreement, and the court may address life insurance benefits in your divorce decree.

Beneficiary Designation

Depending on your state’s laws, your divorce court may be able to order a spouse to list his ex-spouse as the beneficiary of his life insurance policy, often as a way to replace alimony or child support payments when one spouse dies. If the insured spouse lets his life insurance policy lapse or removes his ex-spouse as the beneficiary, the ex-spouse can file a claim against the insured spouse’s estate when he dies. If this claim is successful, the ex-spouse may obtain money from the deceased spouse’s estate to replace the life insurance proceeds she was supposed to receive.

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Insurable Interest

If you are financially dependent on your ex-spouse’s income, you have an insurable interest in your ex-spouse. For example, if you rely on alimony or child support payments, your ex-spouse’s death could cause a financial hardship; this gives you an insurable interest. If you have such an interest, you may be able to purchase a life insurance policy on your ex-spouse’s life. If you do not have an insurable interest and life insurance is not addressed in your divorce decree, the insurance company may not be able to award you any money when your ex-spouse dies.

Children as Beneficiaries

Many divorced spouses attempt to name their children as beneficiaries instead of their ex-spouse, but minor children cannot receive life insurance benefits directly. They must reach the age of majority to receive the benefits. You can, however, set up a trust or guardianship for your children to allow someone else to manage the money for them until they reach majority. In the meantime, the money can be used for their care.

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