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What type of coverage do you need?

By: Andrea Moyerimage of certificate of divorce

With the holidays behind us, our thoughts are likely returning to the quieter side of life.  As you’re thinking about income tax returns and New Year’s resolutions, you might want to add this little read to your To Do list:

While I truly hope that no one has to experience it, divorce does happen and it is important to know just what you need to do in the event that you find yourself in that situation.

If you have a life insurance policy and you’re divorcing, you will need pay special attention to the terms of the policy.  Pennsylvania estate law mandates that each ex-spouse forfeits all claims to existing life insurance left by the other spouse.  Simple enough, right? Once you divorce, you don’t get any life insurance money from your ex-husband or ex-wife.  (If, for any reason, you would want your ex spouse to be the beneficiary you would need to get another policy after the divorce has become finalized naming the ex spouse as the primary beneficiary.)

However, there’s a caveat: if the life insurance policy was issued through an employer, it’s a game-changer.  The Employee Retirement Income Security Act (ERISA), passed by Congress in 1974, “protects” employee retirement and benefit plans and keeps everything uniform across the board.  If you think about it, that’s actually a good thing, since the benefits and plans remain in place regardless of the individual state laws. You might live in Pennsylvania while your ex spouse lives in, say, Delaware, where the estate laws might be different.  Or, your employer might be a national company operating in multiple states. Clearly, there needed to be some kind of goal post, so ERISA was passed with that view in mind.

This does not apply to private life insurance policies, so basically you have two choices: you can either remove your ex spouse as the designated beneficiary from your employer-generated life insurance policy or you can purchase a life insurance policy through a private provider.

I’ve included some excerpts from an article written by an attorney, Richard K. Konkel, to further illustrate my point.

In a recent case, a man had named his wife as the primary beneficiary of a $40K life insurance policy provided to him by his employer.  He named his nephew as the contingent beneficiary.

The man and his wife/beneficiary divorced and the man died three months after the issuance of the final decree of divorce.  Despite the divorce, the man had not removed his ex-wife as the primary beneficiary on the life insurance policy.

Following his death, the man’s estate executor petitioned the court to permit the estate to pay the life insurance to the nephew, noting that upon the divorce the designation of the ex-wife was null.  But the ex-wife disputed the application of Pennsylvania estate law, because employee benefit plans are strictly regulated by federal law only.  Federal law requires that benefit payments be made based on the plan documents, in this case the original beneficiary designation form that still named the ex-wife as the primary beneficiary.

 The dispute was litigated all the way to the PA Supreme Court and the ex-wife won. 

Oh dear!  I’ve given you the abbreviated version, of course, but Konkel goes on to point out a few more details:

Had the deceased man’s life insurance been payable on a private policy unrelated to his employment benefits, Pennsylvania law automatically nullifying the ex wife’s beneficiary status upon divorce would have been controlling and the policy payment would have gone to the man’s nephew.

There you have it.  Are you currently divorced or going through a divorce?  Take a look at your life insurance policy and review the documents, particularly if it was issued through your employer.  Make sure you have who you want designated as the primary beneficiary.  Consider purchasing a life insurance policy and contact the Weimer Group at either our Perkasie (215) 257-9171 or Harleysville (215) 723-9805 offices today to ensure that you get the outcome you want for your loved ones.

Also Read: Life Insurance - Are You Covered?

Posted 1:01 PM

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