Life Insurance: Beneficiary & Divorce & Sudden Death
Life insurance comes in many shapes and forms, but there are always three things in common no matter the policy: the owner of the policy, the insured, and the beneficiary. The owner is the person who actually contracts with the insurance company, and pays for the policy. Often, the owner is also the insured, but not always. For instance, a company may take a policy out on a valued worker who's death would cause financial loss to the company, or a parents may take a small policy out on a child of theirs to pay for any potential funeral expenses.
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What is the beneficiary?
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The owner of the policy is the one who chooses the beneficiary, or the person who will receive the proceeds of the policy if the insured dies. In the example above, it would probably be the company receiving the money to make up for that loss. A wife and husband are normally the beneficiary of one another, with their children being secondary beneficiaries in case both the mother and father die at the same time.
Who can change it?
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The owner is also the only one who can change the named beneficiary. For instance, a husband owns a $10,000 life policy on himself, with his wife the beneficiary. As long as she is not an irrevocable beneficiary, and depending upon the state they live in, he can change it to any other party at any time. Some states with joint ownership of assets do require a spouse's approval to be removed as a beneficiary.
Some divorce settlements are structured so that the beneficiary must remain the same. If this clause in not in effect, the owner may change the beneficiary to whomever he chooses.
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What if it doesn't change?
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It may be possible that, in the above example, the husband forgets about the policy and remarries without changing the beneficiary. If he were to die with the policy in effect, the former wife would still receive the $10,000 even though they were in a divorced status. The current wife would receive nothing from the policy.
In the courts
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A legal case may be brought before a court in the event of a sudden, unexpected death of the insured, contending that he had all intentions of changing the policy but that there simply was not enough time to do so.
A claim of fraudulent or coerced behavior may also be made.
Due to the multitude of circumstances with such cases it would be impossible to forecast how any court would rule, but they tend to side with the contract as written and signed.
Seek advice
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It is always wise to seek the advice of a qualified insurance agent or financial counselor when considering creating, adding to, or changing any aspect of an insurance policy. She can walk a client through the legal ins and outs and ensure that the policy does just what the owner (and insured) prefers.
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