Is a sole beneficiary named on a
term insurance policy that was purchased by the insured while married entitled
to receive all the insurance proceeds?
Not necessarily.  If the deceased insured
was either divorced or married then the surviving ex-spouse and/or the
surviving spouse may be entitled to a portion of the proceeds even though they
are not named as beneficiaries.  Let us consider
some examples.  [Note:  With term insurance a death benefit is paid only
if the insured dies while the policy is in force. Term insurance, unlike whole
life insurance, has no cash surrender value.]


            First, take a married insured person
who names a daughter as the sole beneficiary.
The final premium was paid by the insured using the insured’s marital
earnings – community property.  Unless
the surviving spouse consented in writing to allowing the daughter to be named
as the beneficiary on the insured’s policy, the surviving spouse is entitled to
one-half of the insurance death proceeds.
Why?  Because the last insurance premium
was paid using community property, the surviving spouse had an undivided
one-half interest in the life insurance proceeds.

            If instead the last premium were paid
using the insured’s own separate property – such as from an inheritance or from
assets acquired before the marriage – then the daughter would receive all the
death proceeds.  Why? Now the surviving
spouse has no community property interest in the insurance policy as the
premium was paid by the deceased spouse’s own separate property.

            Second, consider an insured spouse
who gets divorced but neglects to remove the ex-spouse as the named death
beneficiary on a term life insurance policy executed while both were married.  In California, a decree of dissolution does
not automatically nullify the right of an ex-spouse to collect as beneficiary
on the other ex-spouse’s life insurance policy; this is unlike with other
assets where an ex-spouse who was named (during the marriage) as a designated
death beneficiary while married is treated as having predeceased the spouse
unless the designation is ratified after the dissolution of marriage.

            Thus, an ex spouse may later collect
based a death beneficiary form previously executed by the decedent while they
were still married.  This can be avoided
if either the insured names a new death beneficiary or the decree of
dissolution says that the insured’s ex-spouse loses her expectancy in the life
insurance policy. 

            Third, consider an insured person
who divorces, remarries, and names the new spouse as sole beneficiary on a term
insurance policy that was renewed after the dissolution of marriage.  Generally, provided the final premium on the
term life insurance policy was paid using money unrelated to the prior first marriage
then the second spouse as the policy’s sole beneficiary will receive all of the
death benefits.

            However, if the premiums on the renewed
term insurance policy are reduced due to payments that were made from first
marriage’s community property then the ex spouse retains an on-going community
property interest in the renewed life insurance policy.  Thus, unless the dissolution decree says otherwise,
the ex spouse may claim some portion of the death proceeds on the renewed term
life insurance even though he or she was not named as a beneficiary and was not
even married to the insured at the insured’s death.   

            In sum, a surviving spouse, or
surviving ex spouse, may have a claim to term insurance proceeds even though he
or she was not named as a beneficiary if either (1) community property from
their marriage was used to pay the final premium on the term life insurance, or
(2) a renewed policy’s premiums were discounted (“capped”) due to payments on
the original policy made from community property.   Additional exceptions may also apply.


“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”