When it comes to life insurance policies, there is often no need that just a spouse to be nominated as a beneficiary. The insurance owner has the freedom to designate any beneficiary they like under the terms of the policy. Similarly, the insurance owner has the option to modify the classification of their policy.
Although a policy owner may choose to identify their beneficiary as irreversible (as opposed to revocable), the policy owner will not be able to withdraw or amend this designation at a later date. Revocable designations, on the other hand, are those that may be modified at any time.
Changing or designating a beneficiary must follow the procedures provided in the life insurance policy itself, and it must be authorized and documented by the insurance company before it can be considered legal.
Another situation in which the policy owner may be limited in his or her choice of beneficiary is when a court decision, such as a divorce decree, requires the policy owner to choose a certain individual as the policy’s beneficiary. In addition, a life insurance policy specifies what happens if there is no specified beneficiary to receive the proceeds.
When there is no beneficiary designated at the time of the insured’s death, the profits of the life insurance policy are often paid to the surviving spouse automatically by the insurance company.
Some policies pay out to the insured’s heirs, while others payout to the insured’s estate. As a rule, the insurance company will describe the order of precedence that will regulate who has the right to receive the profits in the event that there is no designated beneficiary.
An agreement declaring that the policy will be treated as independent (rather than community) property might be signed by marriage if one of the spouses desires to surrender his or her entitlement to a specific life insurance policy. In most cases, the insurance company will need to be notified of the waiver of spousal rights.
Sometimes, the insurance provider may require the spouse who desires to waive his or her rights to sign a permission document before the waiver will take effect. A legitimate agreement renouncing spousal rights must meet the criteria of state law in order to be recognized.
Ideally, when a couple is going through a divorce, they should talk about their life insurance policies as part of the property settlement agreement. As a result, the insurance policy is included in the divorce order, the insurance company is told of the divorce agreement, and both parties are aware of what would happen in the event of the insured’s death.
It is common for disagreements to arise when a life insurance policy is not included in a divorce decree and the insured spouse forgets to remove his or her ex-spouse from the policy’s beneficiary list. When this occurs, disagreements often arise as to who is entitled to receive any life insurance benefits after the insured’s death.
In many states, an ex-designation spouse’s as a beneficiary of a life insurance policy is immediately removed unless the ex-spouse can demonstrate that there was a formal agreement to maintain him or her as a benefit notwithstanding the divorce.
Not all life insurance plans are subject to the cancellation provisions of these statutes. For example, life insurance plans governed by federal regulations will pay out to the named beneficiary regardless of whether or not the recipient is also covered by state laws.
The question arises as to what happens if a couple divorces and decides to maintain each other as beneficiaries on their life insurance policies without entering into a formal agreement or notifying the insurance company of their verbal arrangement?
Such instances are exceedingly intricate, and the insurance company will almost certainly be required to file an interpleader and let the court determine whether a verbal agreement is sufficient to exclude the case from the state law revocation requirement in the first place.
Meet Krishnaprasath Krishnamoorthy, a finance content writer with a wealth of knowledge and experience in the insurance, mortgage, taxation, law, and real estate industries. With 15 years of experience and qualifications in insurance, mortgage, law, and investments, Krishnaprasath Krishnamoorthy has a deep understanding of the complex financial and legal issues that impact individuals and businesses alike.