Life Insurance policies and beneficiaries

Dear Len & Rosie,

A friend of mine had been married for about one year. Her husband just died tragically. At the time of his passing, he had not yet changed the beneficiary on his life insurance policy to his wife. His parents are still named as the beneficiary. Does the surviving wife have any claim on the life insurance, or is she out of luck? It's certain that some of premium payments would have been paid with community property funds.



Dear Randy,

As a rule of thumb, when you get married or register as a domestic partner with the California Secretary of State, or if you get divorced, it's time to take a look at all of your estate planning documents, including pension and life insurance policy beneficiary designations.

It's also important to understand that it doesn't matter what your will or trust says about your life insurance and retirement accounts. These accounts will pass to their designated beneficiaries no matter what the estate plan says. If you want to change who gets your insurance or retirement accounts upon your death, the only way to do it is by filing out new beneficiary forms obtained from the insurance company or retirement account custodian.

Your friend's rights depend on what kind of insurance her husband held, and when the policy premiums were paid. If he owned a fully paid up whole life policy, and didn't make any policy payments during the marriage, then your friend has no rights at all. The policy was her husband's sole and separate property. The same applies if her husband paid the policy premiums from separate property assets, such as inherited or gifted money, or money he already had prior to the marriage.

However, if he paid the policy premiums out of his earnings, and there's no pre-nuptial agreement saying his earnings are separate property, then he used community property half owned by his wife to pay for his insurance. Under California law, a spouse cannot give away community property without the consent of both spouses. So, your friend would have a claim on part of the life insurance.

If the policy is a term life policy with no cash surrender value, then she should be entitled to a full half of the proceeds of the insurance. If, however, the insurance is a whole life policy that is part insurance, part investment, then she won't get half. She'll be entitled to only half of the portion of the policy purchased with community property.

She should contact the life insurance company. They'll put a hold on distributing the policy so that she and her husband's parents can work it out. If they can't, the life insurance company will likely surrender the policy to the court in a legal procedure called "interpleader" and allow your friend and her in-laws to fight over the policy in court without the insurance company's further involvement.

Len & Rosie