The Effects Of Divorce On Life Insurance
Getting divorced can dramatically impact your life insurance situation. In many instances, the court may require one or both spouses to maintain a specific amount of life insurance coverage. If you’re in the process of filing for divorce, take the time to familiarize yourself with the most common issues and situations that may result in mandatory coverage.
The Divorce Settlement
It’s not uncommon for divorce decrees to require one or both partners to modify existing life insurance policies or purchase new coverage altogether. Typically, the purpose of mandating such coverage is to protect the financial liability created by other stipulations of the divorce, most notably child support and alimony. If the spouse providing this type of assistance dies, life insurance proceeds can be used to replace the lost income and ensure that remaining financial obligations are still met.
While most divorce settlements do not usually specify the exact type of life insurance policy required to fulfill the obligation, it’s not uncommon for the court order to define both the benefit amount and the length of time that coverage must remain in force. Many settlements demand that coverage remains in force for at least as long as child support or alimony payments are paid, and that the death benefit is equal to or greater than the aggregate sum of those payments. Term insurance products are often the easiest and least expensive types of policies used to protect child support or alimony obligations, but permanent products may be used as well.
The Arrangements
The complexity of the divorce settlement with respect to life insurance varies greatly, often depending on how important coverage is to the couple. Typically, the ex-spouse is named as the primary beneficiary and the children, if any, are named as contingent beneficiaries. In some cases, policies are owned and paid for by the ex-spouse as well, which alleviates potential concerns over unauthorized beneficiary changes or non-payment of premiums.
Seeking Professional Assistance
If you’re divorced and in need of a life insurance policy to protect your child support or alimony obligations, consider enlisting the services of a professional insurance agent. A properly licensed and experienced representative will be able to guide you through the process of understanding the different policy types available and finding the best product to meet your needs.
