What you need to know – The rolling pin
When you get divorced, there are countless details to sort out during and after the divorce process. You have to decide what happens to your home, what your custody arrangement will look like, and whether child support will be required, so it’s understandable that some of the smaller details are starting to slip through the cracks.
One of those details you may overlook when deciding who gets what furniture and whether to sell your vacation home is what to do with the life insurance policies you or your spouse took out before or during your marriage. . While knowing what to do with a life insurance policy might not be at the top of your divorce to-do list, it should be, especially if you have children who would need help. financial support in the event of the policyholder’s death.
Keep reading for answers to some of your top questions about life insurance and divorce.
Answers to your top life insurance questions
Even if you or your spouse haven’t purchased life insurance for each other, it might be time to think about it. Yes, even if you are on the verge of a divorce, it can be a very good idea to take out a life insurance policy that offers financial assistance to you or your spouse in the event of the death of one of you. . Let’s find out what life insurance is, what happens to existing policies during and after divorce, and why you might want to purchase a policy for yourself or your spouse now.
What is life insurance?
First of all, life insurance is a type of insurance policy that provides a financial payment upon the death of the person the policy was purchased to insure. The person who takes out and pays for the policy pays monthly premiums to the insurance company with the agreement that the company will pay an agreed sum to the beneficiary.
Life insurance not only provides financial support, but it can also give you peace of mind. In the event of the death (or of the person you purchased the policy on), the beneficiary will receive some level of financial support to help cover funeral costs and living expenses.
There are two main types of life insurance policies: term and permanent. A term life insurance policy only provides for a set period of time, while a permanent life insurance policy lasts for your lifetime.
Why do you need life insurance after a divorce?
Once you are divorced and separate, it may seem odd to maintain a life insurance policy on your ex-spouse or a policy on yourself for their benefit. In some cases that would be odd, but in many cases it makes a lot of logistical sense. For example, if your spouse has to pay alimony or alimony, you really need life insurance in case of death. If they are successful, you will no longer receive monthly support or child support, which can lead to great financial hardship.
Let’s reverse the script. If you are the spouse paying child support and you do not have primary custody (i.e. a non-custodial parent), you may want a policy for your spouse to cover the costs of childcare it provides. The non-custodial parent can choose to give a life insurance policy to their ex-spouse without having to pay gift tax if they do so before or during the divorce agreement.
Even if you have no children and no alimony is required, it is worth insuring an ex-spouse if you receive pension or retirement benefits from him.
Who pays for this?
Who pays for the life insurance policy (or policies if you have one for each spouse) depends on the divorce decision. In some cases, the non-custodial parent will be required by the court to pay the policy out of their own life. He will then have to designate the custodial parent as the beneficiary and continue to pay the monthly premiums. In other cases, the cost of the life insurance policy will be added to child support or alimony, and then the recipient will pay the policy. Each situation varies, so it’s hard to say exactly who will be responsible for making the monthly payments.
Even if you don’t have an existing life insurance policy, the court may order that you purchase a policy to support your ex-spouse. If you wish to take out a new insurance contract for your ex-spouse but cannot do so, if he has an existing contract, you can request that it be transferred to you as the new holder and beneficiary of the contract. Either way, if your spouse is the one responsible for paying for the policy, you’ll want to make it part of your divorce agreement that you’ll receive proof that the life insurance policy is still paid and is active from time to time. time.
Before going to court, work with your spouse and respective attorneys to try to reach an agreement regarding your life insurance policies. If you both agree on what you would like to happen, you should come to court knowing:
- How long does life insurance last term of the policy should be
- How much coverage to buy if you don’t have a font yet
- Who will own politics
- Who will pay monthly premiums
You may need to provide proof of your policy to the court. You will therefore also need to ask the life insurance company or your insurance broker to give you a copy of your signed life insurance application or a payment receipt for term coverage.
Who should be your beneficiary?
Who your life beneficiary of the insurance may be determined by court order if you have an existing policy. If the court does not decide for you, you can choose to make your children, your future ex-spouse or your estate the beneficiary. If you decide to change your current beneficiary, all you have to do is call your life insurance provider and ask them to change your beneficiary. In some states, your life insurance beneficiary is required to have an insurable interest in your life. In other words, you may need to choose someone to whom you have a financial obligation, such as a child or ex-spouse.
In many states, the divorce decree or state law replaces a beneficiary listed on a policy, which means that even if your divorce decree lists your ex-spouse as your beneficiary, your insurance company may ask you to rephrase this post-divorce in order for it to be valid. If your former spouse was the beneficiary of a contract and the judge does not decide that he should remain beneficiary, you can choose a new beneficiary if you wish.
Before designating your children as beneficiaries, it is important to consider their age. Life insurance companies are not legally allowed to pay death benefits to beneficiaries who are under 18 (or 19 if they live in the states of Alabama or Nebraska). If you die before your beneficiary turns 18, the court must appoint a legal guardian who will decide what to do with the life insurance funds. This can cause money to be tied up for years. If you have young children, you may want to consider one of the following options:
- Choose a guardian control the funds if you want the custodian to be someone other than the surviving parent.
- Create a trust which designates specific assets, beneficiaries and a trustee to manage the trust.
- Keep your ex-spouse as a beneficiary because they share custody and financial responsibility for your children (you can always change beneficiaries once your children turn 18 if the policy is not in your divorce agreement).
Can I purchase a policy for my spouse after our divorce?
Even if a judge doesn’t add a new life insurance policy to your divorce agreement, you can purchase a policy for your spouse after your divorce – as long as your ex-spouse is willing to participate in a medical exam and sign life insurance policy. In this case, you’ll be responsible for paying the monthly premiums, but in exchange, you’ll gain much-needed peace of mind knowing that the policy is paid on time and is still active and in good standing.
Related: Best life insurance without medical exam
If you choose to purchase a policy for yourself or your ex-spouse after your divorce, you’ll want to keep a variety of factors in mind when deciding how much coverage you’ll need to pay. Generally, it’s a good idea to buy a policy that covers at least 10 to 15 times your income, but you’ll also want to consider the following financial needs:
- Childcare and education costs to raise a child to age 18 or to pay for college
- Dependents other than children such as dependent family members and aging parents
- Income replacement whether your loss of income will affect any of your relatives or dependents
- End of life costs like Funeral services
Is life insurance considered marital property?
Whether or not a life insurance policy is considered marital property depends on the type of policy you have. If you have a term life insurance policy, it will generally be treated as separate property during a divorce, as you cannot access the policy’s financial assets (i.e. the death benefit ) when the insured is still alive. Permanent cash value policies can be treated as marital property. Technically, the permanent life insurance policy is not considered an asset, it is the cash value of a permanent policy that is considered an asset.
If you choose to purchase a policy after your divorce, but still want to name your ex-spouse as beneficiary, this will not be considered marital property.
FAQs
Final Thoughts
Whether or not you need life insurance after a divorce, or what happens to existing policies you or your spouse have, will greatly depend on your unique financial needs. If a party is required to pay alimony or child support, it is especially important to consider having a policy that provides financial support in the event of death. Your attorney can help you include a life insurance policy in your divorce agreement, but ultimately the judge will have the final say on how life insurance will play into your divorce.