If you are married and have a life insurance policy, you may wonder what will happen to the death benefits if you or your spouse passes away. Will the surviving spouse receive the payout without any problems? The answer depends on several factors.
Type of policy
The type of life insurance policy you have can affect whether your spouse’s payout can be denied. Term life policies provide coverage for a specific period of time, such as 10, 20 or 30 years. Permanent life policies provide coverage for your entire life.
If you have a term life policy, your spouse’s payout can be denied if you die after the term expires or if you stop paying the premiums during the term. If you have a permanent life policy, your spouse’s payout can be denied if you stop paying the premiums or if you withdraw or borrow too much from the cash value.
Beneficiary designation
The beneficiary designation is the person or entity that you name to receive the death benefits from your life insurance policy. You can name anyone as your beneficiary, such as your spouse, children, relatives, friends or even a charity. You can also name multiple beneficiaries and specify how the benefits will be divided among them.
However, naming your spouse as your beneficiary does not guarantee that he or she will receive the payout. There are some situations where your beneficiary designation can be challenged or invalidated by the life insurance company or by other parties.
For example, if you name your spouse as your beneficiary and then get divorced, your ex-spouse may still be entitled to the payout. This is because California does not have a law that automatically revokes an ex-spouse as a beneficiary after divorce, unlike some other states.
Another example is if you name your spouse as your beneficiary and then die within 2 years of buying the policy. In this case, the life insurance company may investigate. This is because most policies have a contestability period of 2 years, during which the company can deny or reduce the payout if they find that you lied or omitted important information on your application.
California law
In California, all property acquired during marriage belongs to both spouses equally. This applies to life insurance policies with a cash value component, such as whole life or universal life policies. If you bought such a policy during marriage with community funds, then your spouse may have a right to half of the cash value and half of the death benefits, regardless of who you name as your beneficiary.