Insurable Interest

Posted: Tue Oct 23, 2012 12:45 pm Post Subject:

The health insurer never has an "insurable interest". Insurable interest exists only between the husband and wife. Even the employer has no insurable interest. An employer-sponsored plan is not required by law (at least not yet) to extend coverage to a legal spouse. (In many states, such as CA, if coverage is extended to spouses, it must also be extended to registered domestic partners and same-sex couples.)

The employer-sponsored plan's "Document", if a self-funded plan under ERISA, sets the rules for participation (which could permit spouses yet lawfully exclude domestic partners and same-sex couples), and may permit a separated spouse to continue to be covered under the plan without triggering the spouse's COBRA "qualifying event".

Otherwise, legal separation is a spouse's COBRA "qualifying event" that normally forces the departing spouse to have to continue coverage at her full cost (of course, the husband could agree to pay that expense for the wife). Again, the employer can make an exception, as long as the same exception is applied equally in every case to avoid any claims of discrimination.

There is a bigger issue looming when it comes to employer-sponsored group life insurance and individual life insurance. There are now 22 or 23 states which (under their Probate Codes) automatically revoke a divorced person as their former spouse's beneficiary at the moment the divorce becomes final.

There is nothing to prevent the policyowner from renaming the ex- as the beneficiary, but it requires an affirmative act. Under ERISA, an employer-sponsored plan cannot exclude the ex- as beneficiary if there is a QDRO or other order of the court to maintain the ex- as beneficiary. But it is the ex-spouse's responsibility to serve a copy of the court order on the Plan Administrator to properly preserve his/her rights. This is frequently the source of big disputes following a worker's death.

A wise divorce attorney would go one step further with individually owned life insurance. Instead of relying on the former spouse now "freed" from his/her ex- to keep paying life insurance premiums and to name/re-name the ex- as beneficiary, the wise attorney would demand that ownership of the policy be assigned to the ex- and also get the court to order the former spouse to continue paying the premiums for the coverage.

Posted: Wed Oct 24, 2012 04:59 pm Post Subject: Insurable Interest

Yes, as long as the ex-spouse (in this case, the husband) keeps the wife as one of the beneficiary in the insurance policy, the insurance carrier will have to keep an insurable interest for the wife.

Posted: Wed Oct 24, 2012 05:16 pm Post Subject:

Yes, as long as the ex-spouse (in this case, the husband) keeps the wife as one of the beneficiary in the insurance policy, the insurance carrier will have to keep an insurable interest for the wife.