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Insurable Interest

  • 1.  Insurable Interest

    Posted 12-03-2015 11:01 AM

    Colleagues:

    Assume that while a couple is married they purchase a life insurance policy on husband's life and name the wife the owner and beneficiary of the policy. Assume further that the parties subsequently divorce and that there is no alimony obligation by either party to the other.

    Clearly, wife had an insurable interest in the policy when it was taken out. Does the subsequent divorce with no alimony terminate her insurable interest so that she can no longer own and/or be the beneficiary of the policy? If so, does the insurance company have to refund the continuing premiums for the policy that wife paid subsequent to the divorce?

    Thanks in advance.

    ------------------------------
    Robert Goldstein Esq.
    Manalapan NJ
    (732)972-1600
    ------------------------------


  • 2.  RE: Insurable Interest

    Posted 12-03-2015 11:40 AM

    Bobby

    Isn't there an NJ rule of law that "disinherits" a former spouse from being a life insurance beneficiary upon divorce?

    Clearly, an MSA is a contractual exception to that rule, but you have not stated any such facts.

    Just like a Will that remains unchanged post-divorce, an unchanged life insurance policy beneficiary designation to a former spouse is deemed void, as if that beneficiary had predeceased the insured, and the alternate beneficiaries or the Estate will take.

    I am not sure whether former Wife's status as policy owner changes any of that, because as owner she can name whomever she wants as beneficiary, including herself.  Interesting question.

    The refund argument seems sketchy to me.  She is the owner and can name whomever she wants, as long as the former Husband is still alive.

    Hanan


    hanan.gif

    Hanan M. Isaacs, Esq.

     

    t 609.683.7400   f 609.921.8982

    e [email protected]   w www.hananisaacs.com

    4499 Route 27, Kingston NJ



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  • 3.  RE: Insurable Interest

    Posted 12-03-2015 11:49 AM

    If Wife is the owner of the policy on H's life, then if H dies, and W is beneficiary, the proceeds are not part of H's Estate, as he was not the owner of the policy. The proceeds go to the Wife if she is the beneficiary. Also, if she is the owner, she can designate anyone else as beneficiary or she can cancel the policy.

     

    John L. Weichsel

    Member of N.J. and N.Y. Bar

    79 Main St.

    Hackensack, NJ 07601

    201 488 1400 (T)

    201 488 3970 (F)

    [email protected]

     

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  • 4.  RE: Insurable Interest

    Posted 12-03-2015 12:13 PM

    I think Meerwarth v. Meerwarth figures in here somewhere.

     




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  • 5.  RE: Insurable Interest

    Posted 12-03-2015 01:08 PM

    Hanan is correct.  Wife owns the policy on the husband's life and she is named as beneficiary (as long as she wants to pay the premium post divorce) she has every right to  keep the policy because she is the owner.

     

    There is a statute in NJ that cuts off the inheritance rights upon divorce voids the ex-spouse as beneficiary under a will if it is unchanged.  This has been extended to life insurance, IRA's etc. by case law.  However, if the divorced decedent does not change the beneficiary status under a life insurance policy that the decedent owns or an IRA etc. after the divorce, the court will impose a constructive trust because the insurance company will pay according to the policy contract.

     

    Alice M. Plastoris, Esq.

    82 Speedwell Avenue

    Morristown, New Jersey 07960

    973-538-7070

    973-538-7088 Fax

    [email protected]

     




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  • 6.  RE: Insurable Interest

    Posted 12-03-2015 01:13 PM

    Do you happen to remember the statute or any of the cases off the top of your head? I would love to tuck this information away into my notes for later use.

     

    ---

    ANDREW M. SHAW, ESQ.

    Divorce & Family Law Attorney

    DeTommaso Law Group, LLC

    73 Grove Street

    Somerville, NJ 08876

     

    Phone: (908) 595-0340

    Fax: (908) 595-0343

     

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  • 7.  RE: Insurable Interest

    Posted 12-03-2015 12:24 PM

    Frank

    I looked at Meerwarth (NJSC 1976).

    That case did not involve a former wife as policy owner and beneficiary.  I haven't done the research, yet policy ownership should make a huge difference in the legal analysis.

    Hanan





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  • 8.  RE: Insurable Interest

    Posted 12-03-2015 01:29 PM

    I think we need more facts. What's the relationship? Why did she own policy in the first place? Estate Planning? Our firm has a list of food tasters we supply in just such cases for post divorce planning.

     




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  • 9.  RE: Insurable Interest

    Posted 12-03-2015 05:11 PM

    I had to look into a similar issue last month and did some research on it.
    Konczyk - https://scholar.google.com/scholar_case?case=16134749653606138780


    Here's the search I ran - there are about a dozen cases that address it. If the case you need isn't here, this should lead you to it quickly:
    https://scholar.google.com/scholar?hl=en&as_sdt=4,31&q=%22insurable+interest%22+divorce&scisbd=2


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    David Perry Davis, Esq.
    ----------------------------------------------------
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    ----------------------------------------------------
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    Pennington, NJ 08534
    Voice: 609-737-2222
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  • 10.  RE: Insurable Interest

    Posted 12-03-2015 06:11 PM

    Bob Goldstein's facts are different.  His client, the former wife, owns the insurance policy.  It is her property.  There is no public policy reason to disturb her rights.  Unless there is some public policy "disinheriting" her, she should be able to inherit upon her former husband's demise, or make someone else the beneficiary before his death if that is her choice.

    Hanan

     


    hanan.gif

    Hanan M. Isaacs, Esq.

     

    t 609.683.7400   f 609.921.8982

    e [email protected]   w www.hananisaacs.com

    4499 Route 27, Kingston NJ

     

    Family Law

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    Re: Insurable Interest

    Image removed by sender. David Perry Davis, Esq

    Dec 3, 2015 5:11 PM

    David Perry Davis, Esq


    I had to look into a similar issue last month and did some research on it.
    Konczyk - scholar.google.com


    Here's the search I ran - there are about a dozen cases that address it. If the case you need isn't here, this should lead you to it quickly:
    scholar.google.com



    Please confirm that you received this email and referenced attachments (if any).

    - Dave

    David Perry Davis, Esq.
    ----------------------------------------------------
       www.FamilyLawNJ.pro
    ----------------------------------------------------
    112 West Franklin Avenue
    Pennington, NJ 08534
    Voice: 609-737-2222
    Fax:    609-737-3222




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    Original Message

    Colleagues:

    Assume that while a couple is married they purchase a life insurance policy on husband's life and name the wife the owner and beneficiary of the policy. Assume further that the parties subsequently divorce and that there is no alimony obligation by either party to the other.

    Clearly, wife had an insurable interest in the policy when it was taken out. Does the subsequent divorce with no alimony terminate her insurable interest so that she can no longer own and/or be the beneficiary of the policy? If so, does the insurance company have to refund the continuing premiums for the policy that wife paid subsequent to the divorce?

    Thanks in advance.

    ------------------------------
    Robert Goldstein Esq.
    Manalapan NJ
    (732)972-1600
    ------------------------------



     

     

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  • 11.  RE: Insurable Interest

    Posted 12-03-2015 06:54 PM

    Three policies, as I just found out.

     

    The first was a policy the Husband owned and paid for. He never changed the beneficiaries despite his remarrying. The insurance company says divorce revokes the beneficiary designation. I believe that's correct.

     

    Next policy wife purchased through her employment. She is listed as owner and beneficiary and ex-husband is insured. He died recently. She kept up the premiums. Insurance company tells her they don't know if she can receive the proceeds. I think she can.

     

    Third policy is through State of NJ. Husband was on accidental disability. She is listed as beneficiary on the policy despite his remarrying. She sees the division of pensions website says insurance proceeds go to named beneficiary even if there was a divorce. If that is so, I think she is entitled to that benefit also.

     

    Robert E. Goldstein, Esq.
    Drescher & Cheslow, P.A.

    610 Bridge Plaza Drive

    Manalapan, NJ 07726

    (732) 972-1600
    Fax (732) 972-0038
    E-mail: [email protected]
    Member, Middlesex County Bar Association, New Jersey Association for Justice and New Jersey State Bar Association

         

     

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  • 12.  RE: Insurable Interest

    Posted 12-03-2015 11:14 PM
    << The first was a policy the Husband owned and paid for. He never changed the beneficiaries despite his remarrying. The insurance company says divorce revokes the beneficiary designation. I believe that's correct.>>

    So all the policies we've insisted on (or agreed to pay for) or a court has ordered providing life insurance to guarentee an alimony obligtion are invalid if the paying spouse remarried.  Good to know - thanks (or, less sarcastically.... I disagree with the insurance company). Send them a "lawyer letter" insisting your client receive the proceeds and, if they pay out to someone else, your client will hold them responsible. They'll probably file an interpleader action - or will do some research first and agree with your client.

    << Next policy wife purchased through her employment. She is listed as owner and beneficiary and ex-husband is insured. He died recently. She kept up the premiums. Insurance company tells her they don't know if she can receive the proceeds. I think she can.>>

    I agree.

    << Third policy is through State of NJ. Husband was on accidental disability. She is listed as beneficiary on the policy despite his remarrying. She sees the division of pensions website says insurance proceeds go to named beneficiary even if there was a divorce. If that is so, I think she is entitled to that benefit also.>>

    I agree again.

    Question -- should we address this in PSA's if a party intends to maintain life insurance? Should we acknowledge that the former spouse has an insurable interest? Perhaps adding a standard "miscellanous" provision saying something like - "The parties agree that the effect of the distribution of property and/or payment of spousal support set forth in this Agreement, while compliant with New Jersey law, shall result in a diminuation of the property interests of the parties and/or post-judgment standard of living and each party shall thus retain an insurable interest in the life of the other."?

    <x-sigsep>

    David Perry Davis, Esq.
    ----------------------------------------------------
       www.FamilyLawNJ.pro
    ----------------------------------------------------
    112 West Franklin Avenue
    Pennington, NJ 08534
    Voice: 609-737-2222
    Fax:    609-737-3222

    </x-sigsep>



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  • 13.  RE: Insurable Interest

    Posted 12-04-2015 08:10 AM
    As to the first point, there was no existing alimony obligation. While it's possible that the Husband wanted to keep his first wife as beneficiary of the policy he owned, they would have needed a re-affirmation of that intent, most likely, under NJ law to keep her as beneficiary.

    As to your last point, David, you can certainly put language in an agreement that a spouse will stay as beneficiary if there is an ongoing obligation by the insured spouse to the non-insured spouse, including an equitable distribution obligation.

    Robert E. Goldstein, Esq.
    Drescher& Cheslow, P.A.
    610 Bridge Plaza Drive
    Manalapan, NJ 07726



    Original Message


  • 14.  RE: Insurable Interest

    Posted 12-03-2015 06:14 PM

    Alice,

    What if the parties arranged during marriage for Wife to own the policy, and never addressed the issue after that?  Isn't that determinative of the issue?  If former wife survives former husband and continues to be named as a beneficiary, I think she gets to keep the dough.

    Hanan

     


    hanan.gif

    Hanan M. Isaacs, Esq.

     

    t 609.683.7400   f 609.921.8982

    e [email protected]   w www.hananisaacs.com

    4499 Route 27, Kingston NJ

     

    Family Law

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    Re: Insurable Interest

    Image removed by sender. Alice M. Plastoris, Esq

    Dec 3, 2015 1:08 PM

    Alice M. Plastoris, Esq

    Hanan is correct.  Wife owns the policy on the husband's life and she is named as beneficiary (as long as she wants to pay the premium post divorce) she has every right to  keep the policy because she is the owner.

     

    There is a statute in NJ that cuts off the inheritance rights upon divorce voids the ex-spouse as beneficiary under a will if it is unchanged.  This has been extended to life insurance, IRA's etc. by case law.  However, if the divorced decedent does not change the beneficiary status under a life insurance policy that the decedent owns or an IRA etc. after the divorce, the court will impose a constructive trust because the insurance company will pay according to the policy contract.

     

    Alice M. Plastoris, Esq.

    82 Speedwell Avenue

    Morristown, New Jersey 07960

    973-538-7070

    973-538-7088 Fax

    [email protected]

     




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    Bobby

    Isn't there an NJ rule of law that "disinherits" a former spouse from being a life insurance beneficiary upon divorce?

    Clearly, an MSA is a contractual exception to that rule, but you have not stated any such facts.

    Just like a Will that remains unchanged post-divorce, an unchanged life insurance policy beneficiary designation to a former spouse is deemed void, as if that beneficiary had predeceased the insured, and the alternate beneficiaries or the Estate will take.

    I am not sure whether former Wife's status as policy owner changes any of that, because as owner she can name whomever she wants as beneficiary, including herself.  Interesting question.

    The refund argument seems sketchy to me.  She is the owner and can name whomever she wants, as long as the former Husband is still alive.

    Hanan

     

    Image removed by sender. hanan.gif

    Hanan M. Isaacs, Esq.

     

    t 609.683.7400   f 609.921.8982

    e [email protected]   w www.hananisaacs.com

    4499 Route 27, Kingston NJ

    Image removed by sender.

    Image removed by sender.



     

     

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  • 15.  RE: Insurable Interest

    Posted 12-03-2015 06:53 PM

    Yes. If she owns policy. 


    Alice M. Plastoris, Esq.
    Office 973-538-7070
    82 Speedwell Avenue
    Morristown, NJ 07960

    Sent via the Samsung GALAXY S® 5, an AT&T 4G LTE smartphone



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  • 16.  RE: Insurable Interest

    Posted 12-03-2015 07:01 PM

    I love the law.  Except when I don't.

    Good job Mr. Bob.

    Hanan





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  • 17.  RE: Insurable Interest

    Posted 12-04-2015 09:25 AM

    David

    I agree with Bob's points.

    If you want to take out a policy on your own life for the benefit of a former spouse for any reason or no reason, or, post divorce, rename that person as a beneficiary of an existing policy, you can do so -- just as you can designate them post-divorce as a beneficiary by Will.

    "Insurable interest" is a non-issue. That is an insurance law and public policy concept as to who "should" be allowed to benefit financially from someone else's death.  If I take out a policy on your life, without being a relative and without any economic basis, insurance law in many jurisdictions would prohibit my collecting upon your death, as I have no "insurable interest" in your passing.

    Former spouses have the right to name each other as beneficiaries and to collect on policies, simply because there was a marriage.  And they can contractually confirm that decision in an MSA, with or without economic justification.

    New Jersey law separately protects insureds from failing to remove former spouses as named beneficiaries from life insurance policies, as we have discussed. Absent an MSA provision requiring continued coverage, the law imputes to decedents an intent to "disinherit" a life insurance beneficiary, simply by the insured's inaction post-divorce and until death.

    This is distinct from but related to NJ cases saying that an heir or an Estate may challenge the beneficiary of an MSA-mandated life insurance policy covering a stream of payments (alimony/child support) and seek an equitable reduction of benefits so the beneficiary does not receive a windfall. 

    For example, if a divorcing obligor parent for a young child took out an MSA- required life insurance policy in Year 1, naming the other parent as beneficiary and covering 22 years of child support and college; the child is now age 23 and done with college; and the obligor died owing no child support and no college money; should former wife spouse be allowed to collect $500,000 as the named beneficiary? The answer should be "no".

    To maximize life insurance protection for a client:

    1. Include an MSA provision that client shall purchase a life insurance policy on the oither party's life and the other party will cooperate in the process, including a physical exam if required.

    2. The client must pay the premiums timely.

    3. The client must outlive their former spouse.

    Hanan





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