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Term life insurance as part of an estate plan, who gets it?

Many New Jersey residents have term life insurance policies as part of their estate plan. An individual's spouse, who is entitled to a portion of the estate plan, is not always the named beneficiary on these policies. For example, a child may have been named as the sole beneficiary on such policies.

The potential exists that a child named as the sole beneficiary may not receive all of the proceeds from a term life insurance policy. If premiums were paid from funds considered to have been marital property, the surviving spouse may be entitled to a portion of the proceeds. In order to prevent this situation from occurring, the spouse not named on the policy must waive his or her rights to the proceeds.

A current spouse is not the only person that may be entitled to a portion of a term life policy. If the beneficiary designation is not changed after a divorce, an ex-spouse named on the policy could still have the right to his or her inheritance. In some cases, if the final premium on a policy was paid for with marital funds, an ex-spouse may still be entitled to a portion of the policy upon death. It may be possible for an ex-partner to waive his or her right to a term life insurance policy in the divorce decree. However, a better option might be to change the beneficiary with the insurance company.

A term life insurance policy as part of an estate plan works for many New Jersey residents. Extreme care must be taken to ensure that the named beneficiary will actually receive 100 percent of the policy's proceeds. Otherwise, a current or ex-spouse may unintentionally reduce the amount going to the intended beneficiary.

Source: lakeconews.com, Estate Planning: Term life insurance issues involving the married or divorced insured, Dennis Fordham, Jan. 25, 2014

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