If your employee benefit package includes a life insurance policy, or you are using a private term or whole-life policy to provide for your loved ones once you pass away, you need to be sure your paperwork is in order now. Otherwise the wrong people could receive your life insurance benefits after you die.
Determining who receives your life insurance benefits after you die means going back to the paperwork you completed when you signed up for the policy. Life insurance contracts generally require you to name at least one beneficiary. These beneficiary designations control how life insurance is paid out, and to whom, after the policy holder dies. A beneficiary can be a(n):
When you pass away, the insurance company is required to issue payments directly to the beneficiaries. These funds are not considered part of your estate, so your creditors will generally not be able to lay claim to your life insurance funds to settle your final debts.
Children can’t receive insurance benefits directly. If you designate your son, daughter, niece, nephew or another child as a beneficiary and they pass away before they turn 18, the Florida probate court will name a guardian of the property to take control of the money and use it for the child’s benefit. It’s generally a better option to create a trust to hold the proceeds for the minor until they are old enough to manage the money for themselves.
You can also designate your own estate as beneficiary to your life insurance. This has the benefit of making it easier to modify the distribution of all your assets at once -- by modifying your Will -- but it could also give creditors access to money you intended to set aside for your spouse, children, or other loved ones. It also guarantees that a probate will be required for your estate, and for these reasons we almost never recommend it. You should speak to an experienced estate planning attorney before naming your estate as the beneficiary of your life insurance policy.
As the policy holder, you have the right to change the beneficiary on your life insurance policy at any time. It is a good idea to review your beneficiary designations along with your estate plan after major life events, and at least every three to five years. However, one particular life change warrants special attention when it comes to life insurance: divorce.
Unlike some other states, in Florida, the entry of a Judgment of Divorce automatically invalidates an ex-spouse’s beneficiary designation on insurance policies. That means if you do nothing after your divorce is finalized, when you pass away, your private insurance provider will ignore any designation saying your ex-husband or ex-wife should receive payments, and move on to an alternative beneficiary, if you have one, or pay the money into your estate if there is no surviving beneficiary available.
This can create problems if your life insurance is supposed to go to your ex-spouse, such as in cases where it is designed to protect child support or spousal support payments. In these cases, you will need to explicitly renew the designation of your ex-spouse as a beneficiary after the final divorce order is entered.
Florida’s rules are designed to protect residents’ assets from going to the wrong person because they forgot to fill out paperwork after their divorce. However, Florida’s state law does not apply to most employer-provided life insurance policies. These ERISA plans are controlled by federal law, which does not have the same life insurance beneficiary rules when it comes to ex-spouses. If your life insurance comes from your company and you are getting a divorce, you should change the beneficiary on your life insurance policy to make sure your ex-spouse doesn’t receive more than they are supposed to in the divorce.
The practical aspects of how a beneficiary collects life insurance depends on whether they were named as a beneficiary individually, as a trust beneficiary, or are inheriting assets based on your Will. Most insurance beneficiaries receive their payment directly from the insurance company and are required to submit your death certificate and fill out the appropriate paperwork from the insurance company. However, that payment could be delayed if there are questions around the cause of death, the status of your policy, or the validity of their beneficiary claims. There are also reasons a family member or former spouse may be contesting life insurance beneficiary designations.
When collecting your life insurance benefits gets difficult, you need an experienced Florida probate attorney to advocate for your interests with the insurance company and defend against beneficiary contests in Florida probate court. At Harrison Estate Law, we know how to make sure the right people receive your life insurance proceeds. We will be happy to meet with you to review your existing estate planning documents and life insurance designations. If problems arise, we will be there for your family, representing their interests in the Florida probate court. Please contact us online or via email or call 352-559-9828 to schedule a free consultation. If you don’t live close to Gainesville or are practicing social distancing, we are happy to set up a phone or Zoom call.