Insurance as Security in the Event of the Supporting Parent’s Death

When considerable time and effort are spent in negotiating settlement agreements, one of the contingencies typically provided for is how child support will be paid or protected after the death of either or both parents. Commonly, protection is achieved through property or life insurance in a well thought-out plan, frequently though not always for both parents, especially if both work and have employer-provided insurance. When parents fail to agree on a settlement, the courts have imposed this obligation on either or both parents, ordering them to name the custodial parent trustee of life insurance policies on behalf of the children in order to protect their right to be supported, including also their right to educational expenses.
The propriety of life insurance as security for child support obligations has been discussed in various cases. In In re Marriage of Dulyn, 89 Ill.App.3d 304, 411 N.E.2d 988, 993, 44 Ill.Dec. 622 (1st Dist. 1980), for example, the appellate court upheld the trial court’s requiring the husband to maintain his life insurance with his child named as an irrevocable beneficiary, finding the requirement an appropriate exercise of the court’s discretion under former IMDMA §§503(d) and 510(c)(now §§503(g) and 503(d)).

Discussing former §503(d) as authority for the life insurance obligation, the court noted that, while that section could be read to require the maintenance of life insurance under the proper circumstances to secure the support, education, maintenance, and general welfare of the parties’ children, such a fund would not be required in this specific case because there was no finding that the trust at issue was necessary to protect and promote the best interests of the children. Notwithstanding that the father was 55 at the time of the hearing and allegedly in poor health and that he had exhibited only a fair record of providing support, no special circumstances existed that would warrant establishing a trust fund.

The court also dealt with the propriety of requiring life insurance under former §510(c), a question of first impression in Illinois. The court noted that this section supported the trial court’s requirement that the father maintain a life insurance trust because the divorced parent’s estate is liable for the deceased parent’s obligation to the extent that it is just and appropriate in the circumstances. The trial court may determine at the time of dissolution of marriage an amount of support for which the deceased parent’s estate will be held liable if the amount of life insurance is not sufficient to support the children upon the father’s death. 411 N.E.2d at 994 – 995 (citing numerous authorities).

The court in Travelers Insurance Co. v. Daniels, 667 F.2d 572 (7th Cir. 1981) applying Illinois law, held that since the decedent’s daughter should have been named irrevocable beneficiary under the divorce decree, the decedent’s wife could not claim the right to insurance policy proceeds. The court stated that ordering the parents to name a child as beneficiary to the life insurance policy is an accepted practice, especially appropriate when the child is to be denied the father’s support at an early age.

In In re Estate of Downey, 293 Ill.App.3d 234, 687 N.E.2d 339, 227 Ill.Dec. 265 (4th Dist. 1997), the decedent’s first wife filed a claim against the decedent’s estate on behalf of the parties’ children, arguing that the children were entitled to all proceeds from the decedent’s life insurance policies. In Downey, the children of the decedent were not named as beneficiaries of any of the decedent’s life insurance policies, but the judgment for dissolution of marriage clearly required they be so named. The judgment in Downey required the husband to maintain aggregate life insurance policies of $55,000, naming the children as irrevocable beneficiaries. Following the dissolution, the husband purchased a $300,000 policy and designated his estate as the beneficiary of the policy. The court conceded that “[i]t is difficult to state a general rule that applies to these cases because there are so many factual variations.” 687 N.E.2d at 342. While the court found that the decedent intended to satisfy his obligation under the judgment for dissolution of marriage by the purchase of a $300,000 life insurance policy, it rejected the decedent’s first spouse’s argument that, because the decedent purchased only one policy, the entire policy was allocatable only for the benefit of the children of the decedent and his first wife.

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