Find out how you can maintain coverage and make changes to your term life insurance policy.
Getting divorced is complicated, no matter the situation. When you separate from your spouse, you also need to go through the process of separating your finances.
While your life insurance policy may not be the first thing that comes to mind when you think about divorce, it is a necessary thing to consider during the divorce process.
As you separate your assets from your former spouse, you want to ensure that you maintain coverage and make sure that your insurance policy is updated to reflect your divorce.
We’re going to be discussing everything you need to know when it comes to life insurance and divorce. Keep reading to find out when you should apply for term life insurance and how to manage a permanent life insurance policy as you navigate the financial aspects of divorce.
Managing A Term Life Insurance Policy After Divorce
You will need to change aspects of your policy from your initial term life insurance quote as your circumstances change.
It is important to always maintain a life insurance policy. Since a term life insurance policy does not accrue any cash value over time, it is not considered an asset as a part of your divorce.
However, that does not mean that you should leave your policy as it was when you got your initial term life insurance quote. If you currently have a term life insurance policy, you should check who you have designated as the beneficiary of your policy.
Since many people designate their spouse just after divorce, you are likely to change your benefactor to a different loved one in your life. To change the beneficiary of your term life insurance policy, all you have to do is call your insurance provider and fill out the necessary paperwork to switch the beneficiary on your policy.
A lot of people who have recently gotten divorced will want to designate their children as the beneficiary. This is only possible if the children are over the age of 18.
If your children are under 18, instead of directly naming your children as the beneficiaries, you will need to create a trust in their name and then designate the trust as the beneficiary of your term life insurance policy.
In the event of your passing—once the trust is established—the trustee will manage the funds until your children are 18 years old.
Managing a Permanent Life Insurance Policy After Divorce
Unlike a term life insurance quote, permanent life insurance includes a cash value that is treated as an asset.
Permanent life insurance policies may need to be split in the settlement. As we just discussed, no matter your initial term life insurance quote, the policy is not treated as an asset because there is no cash value to the policy.
If you have a permanent life insurance policy, on the other hand, then the policy is treated as a marital asset. Depending on when you initially took out your permanent life insurance policy, it may count as a premarital asset.
In most cases, premarital assets are protected during your divorce. If you took out your life insurance policy during your marriage, things might get a bit more complicated.
If the insurance policy was taken out during your marriage, then it may be listed as an asset that will be up for negotiation. Should your life insurance policy be up for negotiation, you may need to split the cash value of your insurance policy based on the proceedings.
If the cash value of the insurance policy is to be split up, then the permanent life insurance policy will end. From there, you will need to seek out a new insurance policy.
In this case, most people take the cash value from the previous permanent policy and search for a new term life insurance quote.
Is it Possible to Take Out A Life Insurance Policy for a Former Spouse?
While you can’t take out a policy on your former spouse, you can create a policy as part of your settlement agreement.
Make a plan with your lawyer to stay insured after your divorce. Depending on the details of your settlement, you may be in a position where your ex-spouse is paying out alimony or child support.
If this is the case, you are probably wondering if it is possible to take out an insurance policy for your former spouse since you are dependent on their income.
While you can’t take out an insurance policy in someone else’s name, you can stipulate in your settlement agreement that you will receive a payout in the event of your ex-spouse’s death.
You will need to work with your former spouse during the proceeding to determine an appropriate payout for your former spouse’s death benefit.
If you are the spouse who primarily takes care of the children, the other parent needs to get a life insurance policy. Unfortunately, once you are divorced, there is no way to ensure that your ex-spouse will keep up with their payments.
If your ex should miss payments and let their policy lapse and there will be no way for you or your children to receive a payout. One thing you can do to ensure that your children are taken care of is to purchase your own term life insurance policy.
Though your own plan won’t substitute for alimony or child support, it does ensure that your children are protected in the event of your passing. For many, getting a term life insurance policy provides great peace of mind after a divorce.
Your life insurance policy is just one of the many things that need to be dealt with during a divorce. While the process seems overwhelming, every detail needs to be carefully considered as you split your finances with your former spouse.
We hope you found the information provided helpful for navigating through the topic of life insurance after divorce. No matter the outcome, it is always important to make sure you maintain life insurance to financially protect your loved ones.
