Life Insurance After Divorce
Divorces can be tough. While things can seem like they’re falling apart, there’s also the opportunity to rebuild and protect your family’s financial future.
As you consider the potential need for alimony, child support payments, and dividing up assets, you also need to think about life insurance.
88% of Americans agree that long-term financial prosperity is a top priority for themselves and their families; this shouldn’t change even if a marriage ends legally.
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 both parties along with the kids are prioritized and protected.
Here’s what you need to know about life insurance after divorce while planning your future.
Changing Your Life Insurance Beneficiary During Divorce
If you already have a life insurance policy, you may have named your spouse as the primary beneficiary on the policy. A beneficiary is a person (or entity) who will receive the life insurance benefit upon your passing.
A primary beneficiary is the first person in line who would receive the benefit, while a contingent beneficiary is a secondary or alternative person you can name to receive the insurance benefit.
Consider changing your beneficiary from your former spouse to someone else. There may be expectations due to your divorce decree regarding if you can change your beneficiary and to whom, but we’ll cover this in more details on this in the following section. Since you are no longer managing money or a household together, there’s little to no reason that they should benefit financially from your life insurance benefit.
Most life insurance policies are revocable which means the policy owner can change the beneficiary at any time. Your beneficiary needs to be someone who has insurable interest which means that they would suffer a financial, emotional or any other type of loss in the event of your passing.
Your beneficiary can be a parent, sibling, or your kids as long as they have insurable interest.
Keep in mind that your insurance company might have restrictions on who you can designate as your new beneficiary so be sure to get clear on those guidelines so the process is smooth and efficient.
Life Insurance and Your Divorce Decree
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 who will be paying the life insurance premiums if you have a joint policy together. Are you legally required to keep your ex-spouse on your policy?
Some permanent whole life policies earn cash value which is the money built up over time from the policy that you can access while you’re alive.
While splitting any whole life insurance cash value is a topic that should be covered in your divorce decree, your best bet is to separate your coverage by obtaining your own life insurance policy after the divorce.
Do You Need to Insure Future Alimony and Child Support Payments?
Is life insurance an asset during divorce? Divorce can have a significant impact on your finances. If you expect to receive child support or alimony payments, it would be wise to insure that income.
If your ex-spouse passes away, the income you’ve been receiving will stop and this could negatively affect your household finances and lifestyle. To avoid this sudden an unexpected financial burden, you may want to consider purchasing a brand new term life insurance policy on your ex-spouse. This may even be an order in your divorce decree.
Life insurance is a tax-free benefit that can cover a variety of expenses. When considering your coverage amount, your policy amount should be large enough to cover any payments you expect to receive in alimony, child support, or other aid from your ex-spouse.
Take it upon yourself to pay the premium payments so you can keep the policy coverage current. If you put your ex-spouse in charge of payments and they miss a payment, your policy could lapse and you’ll lose coverage.
Luckily, term life insurance policies don’t cost that much money. You can get a lot of coverage at a price that’s reasonable enough to fit within your budget.
Consider Obtaining a Separate Term Policy
Ultimately, divorce can very well trigger the need to get a separate life insurance policy. You’ll want to separate your coverage from your former spouse and update your policy to reflect your new circumstances and needs.
If you’ve never had a life insurance policy, you should consider applying for one especially if you have kids. If divorce makes you a single parent, you’ll want to make sure you protect your kids’ financial future if you were to pass away early.
Whether a single parent or not, we all want the best for our kids. A term life insurance policy can help ensure your kids maintain a stable lifestyle and perhaps even have enough money to pay for college or other large expenses.
Fortunately, term life insurance is easy to obtain and pretty affordable. Of course, buying term life insurance when you’re younger means you can purchase a larger policy for less month, but it’s still an affordable solution for everyone all around.
For example, a healthy 40-year-old male can get a $250,000 life insurance policy that only costs as little as $25 per month or $300 per year. That’s less than a monthly gym membership for most people. A 35-year-old female can get $200,000 of term coverage for just $11 per month. That’s very little to pay to insure any income you’ll receive from your ex-spouse.
Plus, term life insurance will provide you with the assurance of knowing your beneficiary(ies) will be financially provided for.
Create Financial Protection For Your Family
Divorce is hardly ever easy. However, obtaining the proper life insurance coverage to protect your loved ones can be pretty simple. Take a few minutes to understand how your divorce will affect your finances in order to determine your life insurance needs.