FROM THE LEARNING CENTER
How to Deal With Life Insurance During and After Divorce
by Bestow Team | August 09, 2021
8.5 Minute Read
Divorces can be tough. While things can seem like they’re falling apart, there’s also the opportunity to rebuild and help protect your family’s financial future.
As you consider the potential need for legal counsel, alimony, child support payments, and dividing up assets, you also need to think about life insurance.
Updating your life insurance policy or obtaining a new one is an important step to make during a divorce — especially if you have kids. Having the proper life insurance in place can help ensure the financial interests of your entire family are prioritized and protected.
Here’s what you need to know about life insurance during and after divorce.
Life Insurance During Your Divorce Proceedings
Many people purchase their first life insurance policy soon after they are married. In turn, this makes life insurance a significant component of divorce proceedings.
Splitting Up The Assets
A big part of a divorce settlement can be the division of marital assets. In some cases, life insurance is considered to be a shared asset, and in others, it is not.
If either of you carries whole life insurance or universal life insurance, these types of permanent life insurance policies could be considered as assets in the divorce settlement.
If you have term life insurance policies, your life insurance would not be regarded as a marital asset because while these policies do offer a death benefit, they do not hold any cash value while the policyholder is alive. However, you may want to take a look at who you’ve designated as beneficiaries, in case any updates need to be made.
Changing Your Life Insurance Beneficiary During Divorce
If you purchased term life insurance while you were married, it is likely that you named your spouse as a primary beneficiary on the policy. This made sense while you were married (the beneficiary is the person who receives your death benefit when you pass away) but now that you are building your own lives, it might be time to make some changes.
Going through a divorce is tough stuff and it takes a lot of strength to reimagine what the future might look like. When you go your separate ways and are no longer sharing assets or debt, it’s not unreasonable to think about removing your soon-to-be ex-spouse as your policy’s beneficiary and instead naming someone new as the designated recipient of your life insurance payout. A beneficiary can be a singular person, a couple of people, or even an entity, such as an estate or a charity you want to support as a legacy donor.
What About Irrevocable Beneficiaries?
In most cases, life insurance policies are revocable which means that changing your beneficiary is a simple and mostly headache-free process.
However, if you have what is called an irrevocable life insurance policy, changing things around might get more complicated. An irrevocable beneficiary cannot be removed from the policy or have their share of the death benefit altered without approving the changes themselves. If this is what you are dealing with, you’ll want to approach changes carefully and should consult your legal counsel for guidance.
Insurance companies and policies each have their own set of guidelines and restrictions when it comes to making changes to your beneficiaries. As difficult as it is, divorce is not rare, and you are not alone in this; your insurance agent will likely be well versed in navigating life insurance and divorce settlements.
Life Insurance After Your Divorce Is Finalized
Once you’ve made it through the divorce proceedings, your likely next step is sitting down with your divorce attorney to review the divorce decree. There are so many moving parts in divorce. Take it one step at a time and be sure to set a moment aside to go over your life insurance obligations and options once the divorce is finalized.
Life Insurance And Your Divorce Decree
Your divorce decree is the final judgment of a judge on a divorce case, containing formal orders on child custody, child support, alimony payments, marital assets, visitation schedules, and any other pressing issues discussed during your divorce proceedings.
It’s important that you review your divorce decree and understand all of the terms before signing anything. One commonly overlooked area of your divorce agreement is life insurance and how it will be handled.
When everything is finalized, you want to know the contents of your divorce decree inside and out before you reassess your life insurance needs.
Your decree will tell you who will be paying the life insurance premiums if you and your ex-spouse have a joint policy together, whether or not you are legally required to keep your ex-spouse’s beneficiary designation as part of the settlement, what your new financial obligations are, and more.
Buying Life Insurance After Your Divorce
Life changes in many ways post-divorce, and you may find yourself in what feels like a brand-new financial situation. You may be receiving or paying out spousal support for the first time, and if there are kids in the picture, you might be sending out or taking in monthly child support payments. This is a good time to take stock of your current assets, debts, monetary obligations, and future plans.
While you’re reevaluating, you may find yourself looking for a new policy with life insurance coverage that makes sense with your current portfolio. A divorce can be a catalyst for purchasing an altogether new type of life insurance or opting for a different payout amount.
Different Types of Life Insurance To Choose From
|Policy Type||Permanent||Cash Value||Good For|
|Whole Life Insurance||Yes||Yes||Someone who is looking for guaranteed lifetime insurance, with a guaranteed cash value.|
|Universal Insurance||Yes||Yes||Those who are looking for permanent life insurance with added flexibility.|
|Term Life Insurance||No||No||People who want generally lower premiums and coverage for determined lengths of time, usually between 5 to 30 years.|
Court Ordered Life Insurance
Life insurance and divorce settlements– it seems like an unexpected association but, in some cases, a judge may order a supporting spouse to carry a life insurance plan to ensure spousal and child support payments are guaranteed even in the case of unexpected death.
If your divorce settlement includes a court order to carry life insurance for your ex-spouse, it will likely incorporate a mandated payout amount and term, typically ending when all children involved reach adulthood.* Your divorce attorney should be able to translate the legal language for you and help you set up the right amount of coverage, determine the beneficiaries, and name the legal policyholders.
Can You Buy A Life Insurance Policy On Your Ex-Spouse?
Most life insurance companies do offer the ability to purchase policies to cover other people besides yourself, but there are laws and regulations that must be followed. While you probably can’t purchase life insurance to cover your friends (though that might make for a fun sitcom plot), you may be able to do so when it comes to your ex-spouse.**
To purchase an insurance policy that covers your ex-spouse, you would have to show the life insurance company that you have what is called insurable interest. Whether they are the family breadwinner paying monthly alimony or a non-custodial parent providing child support, the insurance company needs to see documentation of your financial reliance on your ex-spouse.**
Beyond that, you’ll need consent from your ex-spouse to take out a policy that covers their life. While you might be the one making the premium payments, they will still have to be an active participant in the underwriting process, submitting answers to medical and lifestyle questions, and in most cases, undergoing a medical exam and submitting a blood sample used by the insurance company to assess their health.**
Can You Stay On Your Ex-Spouse’s Life Insurance Policy After The Divorce?
It’s normal to wonder what happens to life insurance after divorce. If your ex-spouse took out a policy that insures your life, with your consent, while you were married, then they can usually keep that policy post-divorce.
It’s possible to request transfer of life insurance policy ownership during the divorce settlement but once the divorce has been finalized, if your ex-spouse is still the policyholder, they and only they can determine the fate of the policy, even if it has your name on it.
Can You Name Your Children As Beneficiaries?
While you can name your children as beneficiaries, it is not generally advised because life insurance policies cannot legally pay a death benefit to anyone who has not reached the age of majority. In most states, the age of majority is eighteen, but in Alabama and Nebraska, age of majority is nineteen, and in Mississippi, it’s twenty-one. ***
If you pass away and your children are listed as beneficiaries and they have not reached the age of majority, a judge will choose someone to manage the funds for them, a process that can take months. During those proceedings, your children would not receive any portion of the life insurance payout, an often-critical source of financial support during the bereavement period.***
If you have children and a good relationship with your ex-spouse, and you have confidence in them as a custodial parent, you might consider naming them as the beneficiary. Another option you have is to name an entity, such as a trust in your children’s name, as your designated beneficiary.***
Help Create Financial Protection For Your Family
Divorce can be complex and is not an easy thing to go through. It’s nice to know that one aspect of the divorce process has been simplified. Applying for new life insurance coverage can be fast and hassle-free. Bestow offers free term life insurance quotes in seconds. Our application process is straightforward, quick, fully online, and we don’t require medical exams or blood samples. If approved, you can get up to $1.5 million in coverage and name your beneficiaries in less than ten minutes.