I had a recent case where an individual obtained a divorce from his wife, but did not remove her as primary beneficiary of his life insurance policy. The man’s Will stated that everything should go to his children. When the man passed away, the issue arose, “Who gets the life insurance proceeds?”
In general, a life insurance policy is a contractual relationship between an individual and the insurance company. Upon the death of the individual, the insurance company is under a duty to distribute the proceeds of the policy to the name beneficiaries regardless of what the individual’s Will states. Thus, in the above scenario, under the contractual relationship, the ex-wife could argue that she is entitled to the life insurance proceeds.
Fortunately, some states have laws to prevent an ex-wife from inheriting under a life insurance policy by automatically revoking the ex-spouse’s beneficiary designation upon the divorce being final. But, revoking the ex-spouse’s beneficiary designation may require judicial action which can be costly. Moreover, these laws only apply to ex-spouses and do not protect against other individuals that you may have wished to remove as a designated beneficiary.
Luckily for me, in the above described scenario, the parties were able to work out a resolution without court involvement because the children named in the man’s Will belonged to both the man and the ex-wife. This potential issue of law could have been easily avoided if the man would have updated his life insurance policy.
In general, a person should review their estate planning documents, including beneficiary designations on life insurance, every three to four years. Updates should also take place any time there are major life-changing events such as:
- A birth of a child
- An adoption
- A divorce
- A new marriage
- A death of a named beneficiary
- The creation of a testamentary trust
- A change in a Will
The process of updating a life insurance policy is simply. For most insurance companies, it simply requires a person to fill out a change of beneficiary form online or by hand. This simple task could save a lot of heartache in the end and ensure that your life insurance proceeds go where you want them to go. If you have any questions about how to update life insurance beneficiary designations, our Idaho Estate Planning Team of lawyers are here to answer your questions and assist you in any way that you need.
Call us toll free at 877-232-6101 or 208-232-6101 for a consultation with Matthew P. Stucki and the Racine Olson team of Estate Planning attorneys in Pocatello, Idaho Falls, or Boise. You can also email Matthew P. Stucki directly at mps@racinelaw.net. We will answer your Idaho, Estate Planning questions and will help you determine how to meet your personal estate planning needs.