When you get married, you never expect that one day you will be in court discussing divorce. If dissolution of marriage is the only solution, obtaining life insurance can become a very important part of securing your divorce settlement.
Each spouse has varying needs for life insurance based on income and financial dependency.
While most married couples will carry life insurance to provide for the surviving spouse and their children, the need does not just disappear once the marriage has ended.
Why Securing a Divorce Court Settlement With Life Insurance is a Good Idea:
Generally speaking, the primary wage earner will obtain life insurance coverage and list their spouse and their children as beneficiaries on the policy. The spouse who is financially dependent on the other receives the death benefit when their spouse passes away and the insured party will receive peace of mind in knowing their family is taken care of when they are gone.
The need for life insurance changes a bit when you are getting divorced. In most cases, part of the divorce settlement process is granting alimony and child support to the spouse who is financially dependent on the other.
- Alimony payments are designed to help the dependent spouse maintain the lifestyle they have grown accustomed to.
- Child support is designed to help cover childcare costs and all other expenses that are associated with being a full-time parent.
If the wage earner ordered to pay alimony or child support were to pass away, you may end up with a financial burden if your ex-partner did not carry life insurance.
Why Spouses Ordered to Pay Alimony Do Not Like the Idea of Carrying Life Insurance:
Your ex-partner may not want to carry life insurance if you are going through a high conflict divorce because they feel that their ex-spouse will be benefiting from their death. If your ex-partner is already bitter about paying alimony, you can understand why they would be upset if they are also ordered to purchase and maintain life insurance with you as the beneficiary.
While the dynamics are different in divorce, it does not change the fact that life insurance is still a must when a settlement is inevitable. Without proper coverage, you may not be able to maintain your lifestyle or support your children when your ex passes away.
Make Sure You Cover All of the Bases During the Settlement Process:
When you are going to court, you should stress that you want your ex-spouse to be ordered to carry life insurance. You want the court to dictate that you are to be listed as the beneficiary of the policy. If this is not covered in court, the spouse will not be required to secure the settlement. Here are three important factors you should consider when life insurance is concerned:
- Make sure your ex-spouse is ordered to buy life insurance.
- Make sure the policy benefits are adequate.
- Make sure you are listed as the beneficiary on the policy so that you receive payment.
- Make sure you are listed as the owner of the policy – if possible.
One of the biggest mistakes that parties receiving alimony and child support make is failing to verify that a policy is active. Just because the party buys insurance does not mean they are going to pay the premiums to keep it in force.
To get around this, you have the right to apply for insurance for your ex-spouse and list yourself as the policy owner. As the policy owner, you receive premium notices and lapse notices. You are also the only one with the right to cancel the policy voluntarily. While some lawyers will try to argue against this approach, this is one of the only ways that you will have peace of mind.
You need to know that the coverage is in force and that you are named as the primary beneficiary and your child/children are named as the contingent. If you were to pass away before your spouse having your children listed as the contingent beneficiaries will guarantee that the proceeds from the insurance policy will go to your children tax-free, and not the new spouse. This will supersede the will.
What Type of Insurance do You Buy?
There are many life insurance products available, the two most popular are term and whole life insurance. The two are very different.
Term life insurance is a product that has level premiums and death benefit for a specified period of time. A whole life policy will remain level for the insured’s entire life and has an investment component built in. If you are receiving alimony, you will receive payments until you are remarried. If you never plan on remarrying, you may want to look into a permanent plan.
If you are only receiving child support until your children are adults, purchasing a term policy for 10 or 20 years may be more appropriate, and is much most cost-effective.
Make sure you take time to calculate just how much insurance is adequate based on how much alimony or child support you receive each year. If you are not securing your settlement with life insurance, now is the time to call insurance agents! Make sure to speak with your divorce lawyer, require your spouse to take the medical exams required for coverage, and get peace of mind you deserve.
Great article! I’m not an attorney, but what I recommend to people in a divorce context is for the supported spouse to not only be the owner of the life insurance policy, but also the payor. With most insurance companies, owner and payor can be two different people. This should be specified when structuring the policy. In other words, the owner doesn’t default to being the payor and vice-versa.
Once the premium for the policy is known that amount can be negotiated into the alimony or child support payment. This way there’s no chance that the insured spouse (ie. who’s paying alimony and/or child support) stops paying the insurance premiums. If the supported spouse is the owner, but not the payor, they will get a notice of potential lapse if payments stop, but they still need to figure out how to get the policy current again. If the divorce wasn’t amicable, that’s probably going to mean going back to court or mediation.