Your Spouse’s Life Insurance Policy — and Your Rights to It

It probably wouldn’t make a good scene in a horror movie, but it would be horrific. Imagine for a moment that you’re a grieving widow. In your grief, you push aside your emotions and start thinking about your late husband’s life insurance policy. After all, you have to go on, and you have three kids to feed.

So you reach into a filing cabinet, search through the important papers, find the policy, and there it is, in black and white…

The beneficiary’s name listed on the policy is…

…his ex-wife.

Or maybe the beneficiary listed is his girlfriend, the one you didn’t know about.

The latter hopefully doesn’t happen all that often, but in the former case, where someone divorces and forgets to take their ex off the life insurance policy, that’s a fairly common scenario, at least from some of the anecdotal evidence that I’ve picked up over the years. Jim Oliver, owner of Jim Oliver & Associates, a San Antonio, Texas-based firm of business advisors and CPAs, agrees.

“This does come up from time to time. We do find mistakes,” he says, adding that he and the other financial advisors at his firm often review life insurance policies of their clients. “And other documents,” he adds. “Your IRA’s, your 401K’s. Anything you have with a beneficiary on it, you’ve got to check it once in awhile.”

On that note, Jack Taylor, professor of retailing at Birmingham-Southern College, says, “I’ve seen this happen, and it’s something we discuss in my insurance law course. Naming beneficiaries is extremely important, and more important than most people think. People tend to get mad when insurance agents bug them about doing annual reviews because they don’t want to be bothered with it, but they’re designed to help discover things exactly like this and can save a whole lot of headaches in the future.”

So what happens if you find out that your husband or wife has a different beneficiary on your life insurance policy?

Don’t freak out. Your first instinct may be to throttle your husband or wife. After all, he has his ex on the policy. You’re upset, and you have every right to be. Especially if you’ve met the ex, this must seem like  a big cosmic joke.

But while you’re probably understandably furious, don’t kill your spouse yet (at least wait until you get the policy changed). Talk to your spouse first and try to put yourself in his or her shoes. If you’ve been divorced yourself, you know — the end of a marriage can really run someone through the emotional ringer. Life insurance — or any insurance — isn’t on most people’s minds when they’re watching their life crumble apart.

A lot of questions to consider. So talk to your spouse. Odds are, when your husband or wife learns the ex is due to get a windfall of money, nobody’s going to be more mad than your spouse for making the mistake. He or she will call your insurance agent and get this fixed. If it turns out that it isn’t a mistake, again, don’t lose it. Maybe everyone’s names — yours, the kid’s, your ex — is on there and your spouse is simply being generous and thinking of the parent of his or her children?

It’s also important to remember that if your spouse is still making alimony payments, the court may have ordered him or her to keep your ex on a life insurance policy, in the event that something would happen before those payments stop. In which case, the only question is — is there a policy for you, too?

Or, sure, especially if that’s a current girlfriend on the policy, maybe your marriage isn’t as happy as you thought.

But what if your spouse is deceased? There’s no chance to make a name change on the policy because your husband or wife isn’t around to do it. You still shouldn’t freak out — yet.

Find an attorney. “First thing I’d say, if you’re in that situation, you call a lawyer,” Oliver says.

But then he adds that it all depends on your state and how it handles insurance. “Certain states have certain rules. In some states, they’ve already thought of this, and the ex-wife wouldn’t get the insurance proceeds, or you’d at least have the right to challenge that.”

But in other states, it’s not so cut and dry. Often it comes down to whether you live in a community property state, and those states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, both spouses equally own the income that was earned during the marriage — which means if a life insurance policy was purchased during your spouse’s first marriage, his or her first spouse is entitled to some of that money.

A case along these lines recently made the news after the California Supreme Court ruled that a $3.75 million life insurance policy, currently worth $400,000, that singer Frankie Valli (you know, the guy who sang, “Sherry” and “Big Girls Don’t Cry”) and his ex-wife bought should be split between them because the premiums were paid from a joint checking account. This apparently took awhile to sort out, incidentally. They separated in 2004.

But if something like this happened to your spouse and his ex, you’re probably entitled, too, if this is permanent life insurance, and you’ve also been paying premiums during your marriage. It would likely be prorated by the court. But that’s part of the fun, too. The rules are different not just by state but by what type of insurance policy you’ve purchased.

Again, consult a lawyer. And your insurance agent.

There may not be a happy ending with this. But what if you find that your spouse has listed a girlfriend or a boyfriend on the life insurance policy, and it wasn’t a mistake?

Again, consult a lawyer and your insurance agent — and a marriage counselor. But that said, for a non-legal but informed viewpoint, Professor Taylor doesn’t think you’ll have much of a legal leg to stand on.

“It’s the insured individual’s responsibility, duty and right to name the beneficiary they choose and it is just presumed that the name listed is the name they wanted,” he says. “Generally, the only way to have it changed is to also prove that the beneficiary was changed to someone else under duress or coercion, which is very challenging to do.”

For the rest of us, if you haven’t looked at your insurance documentation, you just might want to check that out and make sure everything’s accurate and up to snuff. Hopefully, everyone reading this is in good shape, however. I’d hate to think of anyone, on account of something I’ve written, sleeping in the garage tonight.

How Much Life Insurance do you need?

Before you apply for life insurance, or if you’ve had your plan for several years, it’s important that you do a few calculations to determine if you have enough life insurance. Not having enough coverage could be one of the worst mistakes that you make for your spouse or your loved ones. There are a few simple categories that you should look at to ensure that you have a large enough plan.

The first number that you should look at is your major debts, like your mortgage, student loans, and other large bills. The life insurance coverage should be large enough to pay off the total sum of your debts.

The next number that you should take note of is your annual income. If you’re the main income earner in your home, or your spouse is, then it’s important that you have the coverage to replace that paycheck if something tragic were to happen to you.

Once you’ve added up all of these numbers, then you can start looking for the perfect plan possible. That’s where we can help.

If you would like to compare life insurance companies, we can help!

Using an Independent Insurance Agent

Every insurance company is different, and all of them have different rates and medical underwriting that they are going to use. That means that you’re going to get drastically varying rates depending on the company that you contact. There are hundreds of companies on the market, which means that you could spend weeks calling different companies.

Instead of wasting your time, let one of our independent insurance agents do all of that hard work for you. Unlike traditional agents, our independent brokers work with dozens and dozens of highly rated companies across the nation and they can bring all of the best rates directly to you. Working with one of our agents can save you both time and money on your life insurance coverage.

You never know what’s going to happen tomorrow, which means that you shouldn’t wait to get the coverage that both you and your spouse deserves. If something tragic were to happen to either of you, it would not only bring emotional pain, but it would have some financial stress as well. That’s where your insurance protection comes in.

Call us today for a quote at 1-888-552-6159.

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Doug Mitchell

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