Life Insurance and Divorce
Most are familiar with the U.S. Census Bureau, which states that fifty percent of today's marriages end in divorce. But no one needs to hear a statistic about the amount of stress divorce can put on a couple, especially if they have children. The best way to combat potential divorce issues and keep stress to a minimum is to think ahead--determining the type and level of life insurance needed for children in divorce.
Ending your marriage affects all aspects in your life. Not only does is take an enormous emotional toll, it forces you to reassess every aspect of your personal finances...including insurance.
Here you'll learn what steps to take with your life insurance policy during divorce proceedings and which life insurance plan may work best for you and your family.
Life Insurance -- Before the Divorce is Final
There are many things to consider -- child custody, child support, alimony, outstanding debt, property -- while you're going through a divorce. Adding life insurance to the discussion is not only smart, it's the responsible thing to do.
- Providing for Children and Ex--spouse. If your ex--spouse is receiving alimony as part of the divorce agreement and has custody of your child/children, then you'll want to make sure they're provided for in the event of your death. A life insurance policy would help to pay off a mortgage or provide enough money to cover future college expenses.
- Changing the Beneficiary. If you have no financial or family ties to your ex--spouse after the divorce, but he/she was named as a beneficiary on your life insurance policy, you'll want to talk to your agent about assigning a new beneficiary. Or, if your ex--spouse makes enough money to survive without alimony or remarries, this would be another reason to update the policy.
- If You're the Beneficiary -- Get It in Writing. If you're relying on your ex--spouse for alimony and child support, naming you and your child as beneficiaries can be included in the divorce agreement. You can also require notification of any changes in the policy, including a change in beneficiary, lapse in the policy, or loans taken against a cash value policy. Any voids of this agreement would hold your ex--spouse in contempt of court, resulting in fines and penalties.
- If You're the Policy Holder -- Assign a Trustee. If you're paying for a life insurance policy that will cover your child/children under the age of 18, you can choose to set up a family trust managed by trustee lawyer, bank, financial institution). The trustee will oversee funds for the child until he/she reaches age 18. This trustee can also be your ex--spouse, with a stipulation stated in the divorce agreement to prevent him/her from spending the insurance money in ways that are not in line with the child's best interests.
During a Divorce -- Which Works Best, Term or Whole Life Insurance?
When you were married, you may have purchased whole life insurance for you and your spouse because of the policy's accumulation of cash value. Now that your priorities have changed, term life insurance within a divorce agreement may make more sense:
- Term life premiums are less expensive than whole life policies because they don't include a component to build cash value.
- If you are paying for term life insurance to benefit your child, you can design the policy to decrease as the child gets older and is in less need of the insurance benefits.
Other Insurance Issues to Consider During Your Divorce:
- Health Insurance.
- If you're currently covered for health insurance under your spouse's employer, it's time to talk to your employer about obtaining health coverage or begin shopping online for a health insurance policy.
- To cover you during this transition, and because of the divorce, you can qualify for a COBRA plan that can last as long as 36 months.
- Work with your spouse to decide which health plan, yours or hers/his, provides the best healthcare coverage for your child/children.
- It is very risky to go without any medical coverage. You have so much to think about during this period of change and turmoil you probably feel overwhelmed--but your health and your children's health should be a top priority. If you have no other coverage available to you, at the very least you should consider buying a policy that would cover the cost of a catastrophic medical emergency, even if it doesn't cover you for routine medical expenses.
- Auto Insurance.
- If your auto insurance policy includes both wife and husband on the policy, contact your agent to update the policy with the sole driver taking custody of the auto under the policy.
- A divorce can affect your policy. If you were covered under a package auto insurance policy, you may no longer qualify for the same coverage. Ask your agent if there is a stipulation that states husband and wife must reside under the same roof.
- Home Insurance.
- As property, such as a house or vacation home, is settled in the divorce, you'll want to align those proceedings with an update to the homeowners insurance policies connected to those properties.
Going through a divorce can take its toll on everyone involved. Taking steps to avoid issues with your life insurance policy will help you get through it and protect your interests.
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