Opinion ID: 1359168
Heading Depth: 2
Heading Rank: 3

Heading: purchase of insurance with community funds

Text: Postseparation disability benefits, even if intended to provide retirement income, may be treated as community property only to the extent they were purchased during marriage with community funds ( Saslow, supra, 40 Cal.3d at p. 854). During the parties' marriage and up to the time of separation, community funds were used to purchase each of the insurance policies underlying husband's disability benefits and to renew each policy for additional three-month terms. After separation, however, husband paid further renewal premiums out of his separate property, thereby keeping the insurance in force until he qualified for disability benefits 32 months later. (2) Term disability insurance is similar in some, but not in all, respects to term life insurance. Term life insurance policies typically contain two elements, dollar coverage payable in the event of death and a right to renewal for future terms without proof of current medical eligibility. [¶] ... [A]s to dollar coverage, term life insurance upon which premiums were paid from community funds has no value after the term has ended without the insured having become deceased. ( Estate of Logan (1987) 191 Cal. App.3d 319, 324 [236 Cal. Rptr. 368].) If the insured remains insurable, the right to renew the policy has no value since the insured could obtain comparable term insurance for a comparable price in the open market. ( Id. at p. 325; accord, In re Marriage of Spengler (1992) 5 Cal. App.4th 288 [6 Cal. Rptr.2d 764]; see In re Marriage of Lorenz (1983) 146 Cal. App.3d 464 [194 Cal. Rptr. 237] [term life policy insuring a still living spouse not a community asset because it lacks present cash surrender value].) An insured who is not medically insurable, however, may be unable after separation to continue life insurance coverage except by exercising the policy's renewal right, previously purchased with community funds, and paying renewal premiums for one or more additional terms out of his or her separate property. If the insured then dies during an additional term thus purchased, it has been held that the community has an interest in the life insurance proceeds commensurate with its contributions to the right of renewal. (See Bowman v. Bowman (1985) 171 Cal. App.3d 148, 159 [217 Cal. Rptr. 174]; In re Marriage of Gonzalez (1985) 168 Cal. App.3d 1021 [214 Cal. Rptr. 634, 54 A.L.R.4th 1195]; Biltoft v. Wootten, supra, 96 Cal. App.3d 58.) That the community's purchase of renewal rights in term disability insurance gives rise to an analogous community property interest in disability benefits does not, however, follow. Term life insurance and term disability insurance have dissimilar purposes. The proceeds of a term life policy are payable not to the insured, but to survivors, offsetting the economic consequences of the insured's death. To provide for a former spouse's participation in those proceeds, when premium payments from community funds have purchased policy renewal rights necessary to keep the insurance in force, may well be appropriate. The purpose of term disability insurance, by contrast, is to replace lost earnings. If during the marriage an insured spouse becomes disabled, the benefits received are community property because they replace community earnings. ( In re Marriage of Jones (1975) 13 Cal.3d 457, 462 [119 Cal. Rptr. 108, 531 P.2d 420].) If the benefits continue after the spouses have separated, they are the separate property of the insured spouse whose earnings they replace, unless during the marriage the premiums were paid out of community funds with the intent that the benefits provide retirement income. ( Saslow, supra, 40 Cal.3d at pp. 860-861.) If, however, the insured spouse has not become disabled during the last policy term for which a premium was paid before the parties' separation, the community will have no interest in benefits produced by renewals of the policy for subsequent terms, because the renewal premium will not have been paid during the marriage with community funds and with the intent of providing community retirement income ( id. at pp. 854, 861). A contractual renewal right that is included in a term disability policy purchased and renewed during the marriage with community funds may afford an insured spouse, who is medically ineligible for new insurance when the parties separate, an opportunity to obtain further disability coverage that would otherwise be unavailable. But unlike a right to renew term life insurance, which keeps alive a possibility of benefits in which the community will have an interest, the right to renew the insured spouse's term disability insurance after separation does not give rise to any community property interest in the insured's disability benefits. (See Saslow, supra, 40 Cal.3d at p. 861, fn. 5.) [2]