Dealing with divorce can be overwhelming, and most times it leaves both parties devastated about how to forge ahead with their separate lives. However, life insurance is a lifesaver in terms of protecting the assets you’ve worked hard to build after a divorce.
While trying to figure out your finances and how to split belongings between you and your ex-spouse, it is paramount to have a basic understanding of how life insurance works during and after a divorce.
What Divorce Settlements Say About Life Insurance
Generally, marital assets are divided between the wife and the husband, but a county may declare that one spouse must make child support payments or monthly alimony to the other party.
This is to ensure that the children are adequately taken care of and the dependent spouse is duly compensated even after the divorce.
Typically, a court will require either of the spouses to have a life insurance policy if there’s an alimony obligation or child support. In a situation where the spouse who is obligated to make payments has a policy like group life insurance policy, he or she might be required to keep the policy.
But if you don’t have a policy in place, you are required to purchase life insurance; this guarantees financial support and protection for the children.
In essence, the two parties have to work hand in glove with their respective attorneys to determine how to go about their shared assets during divorce. This includes considering who pays the premiums, the owner of the policy, the beneficiaries listed on the policy, and other things pertaining to the life insurance policy.
Life Insurance Considerations during a Divorce
We understand that going through a divorce can be difficult to deal with; hence, we are going to explain important things you should consider during the process.
• Review your personal life insurance needs
When going through a divorce, the first thing you should consider is your own life insurance needs. This would enable you to know if you should make changes to your existing life insurance policy or if you need to get a new one.
The primary thing most divorce experts will tell you to do is to receive your insurance needs. This does not apply to divorce alone; if you’re going through a financial or personal change, such as having a child or getting a new house, you should consider your personal life insurance.
It is important to note that getting divorced does not change anything on your life insurance policy. Perhaps you wish to update the beneficiaries on your policy or change the insurance coverage you have; you should reach out to your insurance provider.
• Determine if your policy is a marital asset
This is also an important thing to consider when going through a divorce. In a situation whereby you have a permanent life insurance policy that includes a cash value, this cash value is potentially an asset and can be divided between you and your spouse during a divorce.
On the other hand, if it is a term life insurance policy, you don’t have to bother about splitting the proceeds from your policy when going through a divorce.
This is because a term life insurance policy does not have cash value and offers a tax-free death benefit once the policyholders pass on.
• Account for cash value in a permanent policy
During a divorce, you will be required to provide a list of all the shared property that can be split between you and your spouse. If the type of life insurance policy you have has a cash value, then the total accumulated cash value has to be listed as a shared asset.
In the process of negotiating how the asset is to be divided, it is ideal to cash out the policy and then divide the cash value between you and your spouse. By doing this, it means you would most likely need to cancel your life insurance policy.
However, you can still negotiate keeping your life insurance policy, depending on the terms of your divorce. If you’re required to keep your spouse on your policy, that means he/she will still be listed as a beneficiary.
• Protect alimony
Protecting alimony is one of the most important things to do during a divorce. This is essential if you depend on the income of your spouse to get by.
So, you’ll most definitely receive alimony after a divorce if you’re friending on your spouse’s income. To protect alimony, set up a life insurance policy for your spouse that lists you as the beneficiary.
Note that your spouse needs to consent to this coverage, even if you’re paying for the insurance policy.
• Protect child support for minor dependents
Also, if you’re on child support payment after a divorce, getting a life insurance policy on your ex-spouse gives financial security and peace of mind. Meaning that you’ll still get child support even if your ex-spouse passes on.
Just like the process of protecting alimony, your ex-spouse has to give you permission to set the policy up.
FAQs
Can you stay on an ex-spouse’s life insurance policy?
Since your ex-spouse does not have an insurance interest, he/she will not be allowed to stay on your life insurance policy after divorce.
The only exception to this is if there’s a divorce declaration that states that the ex-spouse is still allowed to stay on the policy. But in most cases, staying on an ex-spouse life insurance after divorce is not allowed in so many states.
How much life insurance does a divorced parent need?
The right amount of life insurance you need after going through a divorce solely depends on you and the circumstances surrounding it.
For instance, if you want a policy that pays for the cost of future education for your children when you pass on, you’ll most definitely need to purchase sufficient life insurance coverage.
Basically, it all boils down to your individual needs. While trying to figure out how much life insurance is suitable for you, the best thing is to explore the utmost need of your children and the risk they’re exposed to.
By doing this, you will be able to have a large picture of future education costs, child care, and other expenses that you may likely face.
