In cases where spousal support would automatically terminate upon the obligor’s death, your client may benefit from requesting a court order requiring the obligor to obtain a life insurance policy to insure the payment of spousal support beyond his or her death. Before you include a requirement for life insurance in your court order or agreement, here are some things to consider:
1. Types of Life Insurance
The most basic option is the term life insurance policy. The insurance will last for a specified period of time (i.e. term) and if the obligor spouse dies within that time period, the life insurance is paid to the beneficiary. Generally, term life insurance policies are very affordable. According to policygenius.com, the average premium for a 20-year term life insurance varies from $20 per month ($250,000 death benefit) to $100 per month ($2 million dollar death benefit).
If you represent the obligor spouse paying support for a set duration/term, you should consider a life insurance policy with a decreasing death benefit so that the recipient spouse does not obtain a windfall upon the obligor’s death later in the term. One option to accomplish this is a decreasing term insurance policy that would automatically decrease the death benefit monthly or annually at a predetermined rate over the life of the policy. Often, decreasing death benefit policies are cheaper than a term life policy which may make it a cost effective option.
Alternatively, if your client is in good health (and perhaps likes to gamble), he or she may want to consider a return of premium term life insurance policy. Although the monthly premiums are typically higher, under these policies, if the obligor spouse does not die during the term, the premiums paid are refunded.
2. Ensuring the Insurance
If you are going to ask the Court to require the obligor spouse to obtain life insurance to insure the support obligation, it is imperative that your order (or agreement) contain language enabling your client to ensure the provision is complied with. For instance, you may want to include language in the court order requiring the obligor spouse to sign an authorization giving your client access to communicate and obtain documentation regarding the policy. This could possibly also be accomplished with language in the Court Order itself authorizing the release of information to the recipient spouse. You should check with the insurance company to confirm that they will allow a release of information to the non-insured party or non-owner by authorization or court order.
If the insurance company does not permit such release, then the court order or agreement should clarify what documentation or information the obligor spouse must provide to the recipient spouse to ensure compliance (i.e. policy number, death benefit amount, status of premium payments, etc.). The court’s order should clearly set forth the frequency that the information will be provided (i.e. within 14 days of recipient spouse’s reasonable request, quarterly, annually, etc.).
The court order should require the obligor spouse to timely comply with health exams, and any other testing/paperwork required to obtain insurance coverage. Lastly, you may want to include language that a failure to comply shall serve as a claim against the obligor’s estate in the amount of the life insurance death benefit the obligor should have carried.
3. Paying the Premium
It is imperative that your court order addresses which party will pay the premium costs for the insurance coverage securing spousal support. Check local case law in your jurisdiction to determine whether this issue has been addressed previously in order to see whether you might have negotiating leverage. Consider a division of the premium expense between the parties so they share the cost. If you are representing the spousal support obligee, it may benefit your client to be the party responsible for sending the premiums to the insurance provider. This puts the party benefiting from the coverage in control of the payment so that timely and regular payment is assured. If the spousal support obligor stops paying his/her assigned portion of the premium cost to the obligee, your client has immediate knowledge and can avoid risking termination of the coverage by paying the full premium. The matter can then be addressed by the Court through the filing of a contempt motion. Reimbursement between spouses for the assigned portion of the premium payment can be made on a monthly or quarterly basis or pursuant to the premium payment schedule set by the insurance provider. This method of payment for premiums can help assure there is no confusion with the insurance company when applying payments to a policy. At times, multiple payment sources for one premium can cause problems.
Consider including a clear penalty (i.e. fee or interest if your court so permits) if reimbursement payments are not timely made to the spouse that is paying the premiums to the provider. It is also advisable to state that payment of the premiums shall be made timely to the insurance provider by the paying spouse pursuant to the payment deadlines established by that provider. Consider including language that neither party shall cause the termination or suspension of the insurance coverage or further encumber the policy, except as specifically permitted under the terms of the order.
It is also good practice to include a timeframe for exchange of statements for the policy. This would be necessary if one party is unable to access the account through the provider. The other alternative is to include language that the login information (username and password) is provided to both parties solely for the purpose of reviewing the specifics of the policy and the status of payments. You might consider putting a limitation on which spouse is actually able to make changes to the policy electronically, provided those changes are in line with the terms of the court order.
4. Before you Finalize
There are some things a practitioner should confirm prior to finalizing any court order requiring insurance coverage to secure a spousal support obligation:
First, be sure that the spousal support obligor is actually able to qualify for a life insurance policy. Depending on the obligor’s health and/or age, insurance coverage may be cost prohibitive or the obligor could fail to qualify for coverage. The ability to qualify for a policy may be something the spousal support obligor’s attorney should include as a prerequisite for the requirement in the order.
Second, the spousal support obligor should obtain quotes, prior to finalizing the court order, as to what coverage may cost to insure the life of the obligor. If the spousal support obligor already has a policy, consider a requirement that the current policy stays in place with the spousal support obligee designated as full or partial beneficiary of a specified amount of the death benefit. However, if there is a policy already in place you are looking to utilize, the terms of that policy and the remaining length of coverage need to be considered when writing obligations in the court order. Also, is this an independent policy or is it only in place if the obligor is employed with his current employer? What happens if the obligor terminates his employment (i.e. is a new policy obtained)? Consider how the current policy’s terms may impact the obligations you include in the court order.
If the spousal support obligor does not already have an outstanding policy, consider your client’s ability to pay for a new policy and whether the amount of the premium payment is practical for the parties. The cost of the premium may impact which party is obligated on the premium and how reasonable the court views the request for insurance coverage to secure support. Anticipate whether the cost of the premium may impact the spousal support award by either reducing the obligor’s ability to pay or increasing the obligee’s need.
Contemplate the interests of each party. Perhaps the obligee is more than willing to pay a higher portion of the premium cost to secure the coverage in the event the obligor dies. For some spousal support recipients, that security in the future is worth a significant amount to them - especially in longer-term marriages where you might have a lifetime/permanent award in some states.
If the issue of insurance is contested between the parties, be sure to check case law and statutes in your jurisdiction to see how your court handles this dispute. In some jurisdictions where spousal support terminates upon death by statute, courts may not be inclined to order an insurance policy or require the spousal support obligor to pay for an insurance policy when the parties are not in agreement. The court may feel that when, by its nature, spousal support terminates at death, it is simply a windfall for a party to continue to receive funds after the death of the obligor. Know how your jurisdiction handles this issue. Perhaps the court is more inclined to require insurance coverage in a disputed situation when there are minor children or perhaps a policy securing the child support is a better alternative when approaching the court.
Lastly, if you have reserved jurisdiction to modify spousal support in the future, consider how the court views that language as to any life insurance requirements in the order. Will the court be able to modify the life insurance obligation as the spousal support order changes or do you need to include language specifically allowing the court to retain jurisdiction to modify the insurance coverage obligation? Does your court even have the ability to modify this post-decree if you do include language reserving jurisdiction over that insurance obligation?
Whether you represent the spousal support obligor or the spousal support obligee, the practitioner needs to think through these insurance issues prior to finalizing any court orders so as to avoid unnecessary future litigation and to protect the interests of the client.