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Life Insurance Beneficiary Designation Issues in Divorce - Part 2

Fleming Financial, PA, LearningThe divorce decree

A divorce settlement may require that you maintain life insurance in favor of your ex-spouse as beneficiary. In these situations, deciding whether to change your beneficiary is easy: You can't. If you plan correctly though, the premiums you pay may be considered alimony and as such deductible for federal income tax purposes.

Your estate as beneficiary

If you have living family members, naming your estate as the beneficiary is not usually a good idea. One of the great benefits of life insurance is that the death benefit is immediately (usually within a few days) paid to your family at the time of your death. When the benefit is payable to your estate, depending on the size of your estate, it may have to go through probate along with all of your other assets. This can tie up the money for as long as a year or possibly even longer.

Changing the beneficiary designation

The owner of a life insurance policy generally has the right to change the beneficiary designation as often as is desirable (assuming, of course, that the owner of the policy has not transferred that right).

It always has to be in writing; sometimes it has to be endorsed

Following the particular protocol of your insurance policy is essential. All insurers require that a beneficiary change be in writing. This is usually as easy as calling the insurer and requesting the proper paperwork. Some require that an endorsement be made to the policy itself. Endorsement is the physical act of changing the policy to reflect a new beneficiary. This is often done by adding a change of beneficiary designation to the existing policy.

What if you can't get the policy endorsed?

A common problem with the endorsement method of changing the beneficiary is that the beneficiary you want to replace (your ex-spouse) may have possession of the policy and refuse to release it. If the final divorce order requires that the beneficiary not be changed, you have no legal right to change it. But if there is no such order and the existing beneficiary wrongfully refuses to release the policy, the endorsement requirement can be bypassed. Notify your insurer and complete all the necessary forms. The change will be effective once all forms are complete. Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015
Thomas Joseph
Other articles by: Thomas Joseph
Categories: Consultation
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