Life Insurance Beneficiary Designation Issues in Divorce

You are (or are about to be) divorced, and you have life insurance that most likely designates your former spouse as the beneficiary. You've decided to keep your current policy. Should you change your beneficiary? If you have children, should they be your beneficiaries? If you do change the beneficiary, are there tax repercussions? There are many options to weigh when deciding who will be your beneficiary. Care should be taken to ensure that you make the most informed choice possible.

What factors affect your designation of beneficiary?

The beneficiary doesn't automatically change

Many married couples name each other as beneficiaries on their life insurance policies. This is a perfectly acceptable thing to do. In a majority of states, the designation of the spouse, by name, as beneficiary, entitles that spouse to the proceeds of the insured spouse's policy, even if they are divorced. This rule is true even if the former spouse remarries.

This could be a problem for you. Most divorced people don't want their ex-spouse to receive the benefits of their life insurance policy. If you fit that description, you need to change the beneficiary designation on your policy.

Caution: In a few states, divorce automatically revokes a beneficiary designation that names the ex-spouse. Check your local jurisdiction for more information.

Tip: If your life insurance is provided as part of an Employee Retirement Income Security Act (ERISA) plan, state law is preempted and only the specific terms of the plan will control. In that case, you don't have to worry about state law affecting your beneficiary designation.

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