About Beneficiaries and Term Life Insurance

If a sole beneficiary is named on a term insurance policy, then that individual can expect to receive the funds of the policy when the insured person passes away. That is, unless the insured is married or divorced. If the decedent passed away and left behind a spouse or an ex-spouse that never remarried, then that surviving spouse may be entitled to a portion of the term life insurance proceeds. This is regardless of whether or not the spouse or ex-spouse was listed as a beneficiary.

This is especially important for individuals who are divorced and do not want their ex-spouse to have any part in their will. Some spouses may assume that when they get a divorce, it cuts their former partner off from any insurance benefits. This is not necessarily true. There are some situations where you may discover that an ex-spouse has the legal right to certain aspects if they are not designated to another beneficiary. Also, in some circumstances, unless there is a specification which eliminates the ex-spouse's eligibility, your ex may be entitled to certain assets.

There are a variety of reasons that a term life insurance policy may be paid over to a spouse instead of a beneficiary. One reason for this transaction is community property. If an insured individual pays the premiums while married, chances are that the payments were made out of community property. This means that automatically, a spouse owns half of the policy. As a result, a surviving spouse is entitled to one-half of the insurance death proceeds. Unlike life insurance, term insurance has no cash surrender value. The death benefit is only paid if the insured dies while the policy is in force.

If an insured person pays the last premium of the insurance with his or her own separate property, such as property from assets acquired prior to marriage or assets from an inheritance, then the insured person has the right to control that money. As a result, that means that the insured individual can gift the entire policy to a designated beneficiary upon death. However, the insured will need to prove that he or she he or she paid for the policy with a separate account. This means creating documentation that proves this prior to death.

Also, if an insured spouse gets divorce but forgets to remove the ex-spouse as the named death beneficiary on a term life insurance policy then that ex-spouse is entitled to receive the benefits. Most states won't automatically remove an ex-spouse at the time of the divorce, so you will need to do this on your own. This can be avoided if the insured person names a new spouse as a sole beneficiary on a term insurance policy.

If you want more information about your term life insurance policy or want to avoid your policy being paid to a spouse or ex-spouse upon your passing, you need to talk with a trusted estate planning attorney or probate professional. Contact a lawyer near you using this directory today to get more information!