By Danielle Arbuckle, Small Biz Advisor
Pamela Glendinning of Glendinning Insurance Services says she sees the same thing over and over again in her practice.
“A lot of people, as soon as they get separated or there’s talk of divorce, will walk into the office and say ‘Take my ex off the plan!’” she says. “It’s an emotional reaction.”
Unfortunately, in many cases, this type of knee-jerk reaction can cost the employee money.
Glendinning says that what often happens is the employee goes to court, and the court says their spouse still needs to be on the plan, at least until the divorce is final and all of the details of the divorce agreement have been worked out.
“The insurance company is not obligated to bring the employee’s spouse back on the plan. Now the employee is liable for any expenses that the spouse comes up with because they shouldn’t have taken them off the plan to begin with.”
So, how should employers advise their employees to proceed after a separation or divorce?
“Sometimes, especially in smaller businesses, the employer will have a checklist for everything they have to change in an employee/spouse divorce,” says Jean-Guy Gauthier, manager, strategy and product development, group insurance with Standard Life, “That checklist should include ensuring that the right dependents are listed and advising the employee to make sure that he feels comfortable with the beneficiary designation.”
Updating your dependents
Before taking this step, employers should help the employee understand the terms of their benefits coverage, specifically who can and can’t be covered as a dependent.
Gauthier notes that for his company, “A spouse can be someone you’re married to or your common law spouse in a conjugal relationship. It’s interesting that in the process of separation and divorce, you may at some point have more than one person qualify as a spouse.”
However, each insurance carrier is different, says Steven Goldman, lawyer and partner with Goldman Hine LLP. He notes that with at least one insurance carrier, as soon as an employee is separated, the soon-to-be ex-spouse’s eligibility for coverage is gone. In cases like this, it’s the employee’s responsibility to remove their ex from their plan right away.
“Coverage doesn’t terminate automatically. That’s why it’s important to read your contract. If a person doesn’t qualify [for coverage], their claims won’t be reimbursed,” says Gauthier.
In other cases, it’s often best to wait until the divorce is finalized, to avoid situations like the one Pamela Glendinning of Glendinning Insurance Services described above.
Goldman says that knowing the terms of coverage can also help the employee as they’re negotiating their divorce agreement. “Before you negotiate, you’d better know what’s contained in your policy. Some of those policies have an automatic termination provision, so you can’t contract to keep your spouse covered under the policy.”
That doesn’t mean that you can’t negotiate separate, private coverage, but again, that usually ends up being costly.
Updating your beneficiary information
As with benefits coverage, employees are responsible for notifying the insurance carrier of any changes to their beneficiary information under their group life insurance policy. Unlike benefits coverage, however, there’s never a requirement to revoke an ex-spouse’s beneficiary designation. In fact, there are a few good reasons to keep an ex as a beneficiary—for example, if the ex-spouse is the primary caregiver to the employee’s children.
Says Gauthier, “If your ex gets alimony in the divorce agreement, and you want to make sure the alimony is protected in case of your death, that’s a good reason to assign your ex as a beneficiary.”
However, if the employee chooses to remove their ex as their beneficiary, they’ll need to know whether that beneficiary designation was revocable or irrevocable. Removing a revocable beneficiary is a fairly simple process that usually involves filling out a form. Removing an irrevocable beneficiary, however, means getting the ex-spouse to waive their right as beneficiary, either by filling out a special consent form or as part of the terms of the divorce agreement.
Whatever the employee’s decision, employers can help by ensuring the employee knows who to talk to and what steps to take.