Spouse isn't always among heirs receiving life insurance payoff

Insurance policyholders in Maryland and throughout the U.S. might assume that a surviving husband or wife are automatically considered beneficiaries to a deceased spouse's life insurance payout. However, asset distribution experts warn that this is not always true. As a rule, policyholders can choose anyone they wish as the recipient of their insurance benefits. The person who pays the premiums, which is usually the owner of the policy, can name not only a spouse as the beneficiary, but other family members or even partners in extramarital relationships.

No judgments are typically made by an insurance company regarding the moral appropriateness of a named beneficiary. Since a life insurance policy is considered a contract between the owner and the insurance carrier, when a claim is made, the carrier pays as stipulated in the contract. There is no beneficiary that the insurance company judges as better or worse; it simply upholds its end of the contractual obligation.

Divorce can make the issue even more complicated when the policyholder forgets to update the beneficiary. Some states have laws that protect new spouses, but these are not ironclad. For example, insurance plans administered by the federal government for its employees are only able to be paid out to the stated beneficiary, regardless of the state laws that may be in effect.

Estate planning may pose challenges when beneficiaries of insurance policies are outside of one's family. Heirs may want to file suit if they feel that there has been an improper or unlawful distribution of assets.