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A spouse's right to life insurance money

Much to your surprise, you find out that someone else is the beneficiary on your spouse's life insurance policy.

As a husband or wife, don't you have an automatic right to the life insurance money?

It's a tricky question, and the answer is: It depends.

Generally, the policy owner - who is also usually the person who pays the premiums -- can name anyone he or she chooses as beneficiary.

Besides naming a spouse as beneficiary, a policyholder could choose another family member, such as an adult child, a business partner, or even a boyfriend or girlfriend outside the marriage.

Insurance companies don't make moral judgments about who is named as beneficiary. They simply pay out the money when the beneficiary submits a claim.

"Life insurance is a contract between the owner of the policy and the insurance carrier," says Donald Goldberg, division vice president of AEPG Wealth Strategies in Warren, N.J.

Community property states

Usually a spouse doesn't have any right to claim the life insurance money if someone else is named as beneficiary -- except in a community property state. Those states are:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

In a community property state, both spouses own equally any income earned during the marriage and any property purchased with that income. That includes life insurance policies.

In Washington state, for instance, if a spouse uses "community property" to pay the life insurance premiums, his or her spouse has the right to a portion of the life insurance proceeds. The extent to which the life insurance is considered community property depends on the type of policy, says Karolyn Hicks, a litigator with Stokes Lawrence, a law firm in Seattle.

With term life insurance, the entire policy is considered community property -- which would give the spouse the right to 50 percent of the death benefit -- if income earned during the marriage were used to pay the most recent premium. The other 50 percent would go to the named beneficiary.

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