The Supreme Court Did What to Beneficiaries?

As they say, “The devil is in the details.” If this true, then we need to look no further than a life insurance policy to find the evidence. This is why it’s worth understanding a decision by the U.S. Supreme Court back on June 11, 2018. It confirmed a Minnesota statute that retroactively annulled a life insurance beneficiary designation due to a divorce.

The facts of the case are straight forward, nothing fancy or complicated. A couple gets married and the husband buys a life insurance policy and names his wife as the beneficiary.

Down the road, they divorce without any mention of the policy. Then, the husband dies, without changing the beneficiary, and the former wife is denied the benefit, even though it may have been his intention that she would receive it. Most state statutes contain an exception if the divorce decree requires the insured to maintain the coverage for the benefit of the spouse. Other common exceptions are if the divorced spouse owns the policy, or if the divorced spouse pays the premium on the policy.

Over the last three years, I have come across this issue with two clients as I was doing Annual Policy Reviews and have had them review the beneficiaries to make sure their intentions would be fulfilled.

Since the Supreme Court handed down this decision, several states have adopted similar statutes, while others are preparing to do so. This is a good time to check to see how it stands in your state.

Do you have clients who have been divorced or contemplating divorce? Would a non-probate divorce revocation statue affect who might receive the death benefit proceeds? If there were ever a good reason to get serious about doing Annual Policy Reviews, this is it. It’s a way to avoid unpleasant surprises, including possible errors and omissions issues. If the intent is for a former spouse to remain a beneficiary, clients can have an attorney bring it into compliance with the current statute.

First American Insurance Underwriters helps financial advisors design and implement the most appropriate insurance solutions for their clients.

We specialize in Life Insurance, Long-Term Care, Disability Income, and Annuities solutions for personal and business planning. We can be contacted at 781.449.6800 or internalsales@faiu.com.

— By The Internal Sales Team