How Life Insurance Works In A Divorce

No matter how nicely you put it, divorce is a painful episode for most people unless your ex is a tyrant and you are relieved that he or she is gone. But even in such cases, a lot is going on, which you may not be aware of at the time. It’s good to get informed, particularly if you have kids. Amid custody battles, looking for a new home, and making sure your kids adapt to all that, plus let’s not mention diving into life as a single individual, figuring out what to do with your life can be a challenging process, but you will get there.

Life insurance is a vital part of the whole process, and an important aspect you shouldn’t ignore. Keeping life insurance protects your kids’ financial interests as well as yours. In the event of a divorce, you will have to make the necessary beneficiary changes, accounting for the cash value, protecting alimony, and most importantly making sure your children are financially stable, notwithstanding what happens.

Beneficiary Changes

In most cases, couples with life insurance will list their partner as the primary beneficiary. That’s the main goal of life insurance – to protect those closest to you from financial hardship. But what about when a divorce occurs? There is a chance you may not want your ex-spouse profiting from your death – it’s not advisable, especially if you are not on good terms with your ex or if you have no children. The good news is that most life insurance policies are revocable, which means the policy owner can change the beneficiary at any time. However, if the beneficiary is “irrevocable” it can’t be changed.  Make sure you contact your life insurance agent after the divorce to find out whether your policy is revocable and to redesign your beneficiary.  

Accounting for Cash Value

There are life insurance policies, especially universal and whole life, which accumulate cash value over time – meaning part of what you pay goes to a fund that grows interest (cash value). So, if you ever decide to skip the death benefit and take the cash value instead, also known as cashing your policy, you can do so. Keep in mind, in a common divorce scenario, you may leave with half of the cash value since the assets are divided equally. Also, besides alimony, a judge may order life insurance, known as “court-ordered life insurance” with a deadline to secure a life policy.

Protecting Your Children

If you are taking custody of your children, you must protect child support after the divorce. Child support should cover the children’s immediate needs such as feeding and clothing or help save for college. But if you don’t receive child support, you won’t have enough to cover your day-to-day expenses. So, you may want to maintain a life insurance policy large enough to replace your lost income or child support at least until your children go to college. You can own the policy and pay it yourself.

If divorce is making you a single parent, ask one of our agents to help you find adequate life insurance today.



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