A life insurance beneficiary is the individual who is entitled to receive money after the policyholder has passed away. No law states that only your spouse or children can receive the death benefit. You can always make changes if you want. Life insurance is a contract, and like any other agreement, it has rules. Here are some of the most critical life insurance beneficiary rules regarding a spouse.
Spouse Legal Entitlement
Most people always wonder whether a wife or husband are automatic beneficiaries of life insurance. An insurance policy is a legal agreement between the policyholder and the insurance company. The insurance company agrees to honor the contract’s terms and pay the benefits to the named beneficiary upon the death of the policyholder. That is the only legal obligation of the insurer, and the marital status of the insured notwithstanding.
The company has no authority over the selection of the beneficiary. However, marriage is also a contract with several spousal rights and protection, which may vary from state to state. The most significant part is that a spouse has legal rights to marital assets. While a wife or a husband agrees to honor the marriage contract, he or she is not legally entitled to be your primary life insurance beneficiary. Additionally, a spouse does not have any legal claim to the death benefit.
Choosing a Beneficiary
When buying a life insurance plan, the insurer will give you the option of designating one or multiple beneficiaries if you pass away. Often, there are no restrictions on who to choose. Additionally, you can always change your beneficiary if, for instance, you get divorced. The only limitation is for minors since you would have to designate a legal guardian as the beneficiary. The best thing you can do is to notify your recipient so that they can file a claim in the case of your death.
In the Absence of a Beneficiary
If you fail to name a beneficiary, or your beneficiary dies before you do, your estate becomes the beneficiary. The death benefit goes into estate probate. Estate probate is a legal process, which settles your debts and divides your estate. Since this process can take longer and creditors can come after your proceeds, it is better to name a life insurance beneficiary and keep it updated. Otherwise, your family may not receive the death benefit, or it might be reduced.
Designating a Life Insurance Beneficiary
After determining who to name as your beneficiary, specify them on the life insurance beneficiary designation form. This form is a legal document used by the insurer to decide who will receive the death benefit. The document also overrides other estate planning you may have such as a will. As such, you need to be sure of those you want to receive the death benefit.
Marriage and Life Insurance are Different
While marriage law dictates that property acquired during the union belongs equally to both parties, this does not apply to term life insurance.
We hope this article helps to clear up some misconceptions about assigning beneficiaries.