The Office of General Counsel issued the following informal opinion on November 6, 2000, representing the position of the New York State Insurance Department.RE: Divorce and Insurable Interest
Is a spouse divested of the insurable interest in his wife or her husband upon divorce so as to preclude the spouse from collecting the proceeds of a life insurance policy that had been purchased on the life of the other marital partner during the marriage?
A spouse is not divested of the insurable interest held in his wife or her husband upon divorce. Thus, a spouse is not precluded from collecting the proceeds of a life insurance policy that had been purchased on the life of the other marital partner during the marriage so long as the terms of either the divorce decree or the policy do not provide otherwise.
A New York State resident stated that s/he was in the process of a divorce. The resident stated that s/he is the named beneficiary on life insurance policies that s/he had purchased on the spouses life. The resident also stated that s/he intends to divide the cash values of those policies as part of the divorce settlement. The resident inquired whether s/he could continue to maintain those policies after the divorce.
N.Y. Ins. Law § 3205 (c) (1) (McKinney 2000), which applies to life insurance and accident and health insurance, states:
No contract of insurance upon the person, except a policy of group life insurance, group or blanket accident and health insurance, or family insurance, as defined in this chapter, shall be made or effectuated unless at or before the making of such contract the person insured, being of lawful age or competent to contract therefor, applies for or consents in writing to the making of the contract, except in the following cases:
(1) A wife or husband may effectuate insurance upon the person of the other.
Thus, while married, a spouse has an insurable interest in the life of his or her marital partner and may purchase insurance on the life of such person. Pursuant to case law, a beneficiarys right to collect the proceeds of a life insurance policy are not affected by the fact that the beneficiary and insured divorced after the policy was issued, so long as the terms and conditions of the policy do not preclude such result. See Salvin v. Salvin, 165 A.D. 362, 151 N.Y.S. 60 (1st Dept 1914). A policyholder must read his or her policy to determine whether it contains any provisions that preclude the collection of proceeds upon the termination of the marriage. Further, the court handling the divorce may modify the general rule and specifically provide for ownership of the policies.
The resident stated that s/he intends to "divide" the cash values of the life insurance policies and inquired whether s/he may keep the policies in-force. Depending upon the specific terms and conditions of the policies, the policies present cash value amounts, and other factors, the policyholder may be able to obtain a partial withdrawal of, or borrow against, the cash values. A policyholder should discuss this matter with his or her insurance agent and/or insurance carrier to determine whether either of these options is available.
For further information you may contact Attorney Sally Geisel at the New York City Office.