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Death and divorce are two things that you never want to think about, but if you have decided to dissolve your marriage there is no doubt that death will come up. Many people who are preparing themselves for the emotionally charged process of divorce have a lot questions flood their mind.
Who will get the house? Who will be granted primary custody? How will assets be divided? Will you take what you brought into the marriage when it ends? These are all examples some of the questions that you might ask.
While these are all common questions that people facing divorce ask, a majority do not ask about life insurance.
Life insurance is a very important subject that needs to be discussed when you are filing for divorce or you are agreeing on a settlement.
Not only do you have to worry about what might happen to the group and individual life insurance that you currently carry, you must also learn about how qualifying for a new life insurance plan can help you reach and secure a divorce settlement.
If you want to be prepared as best as possible, you need to familiarize yourself with the process and how divorce can impact your need for life insurance.
Read this guide to Life Insurance and Divorce, and learn what you need to know.
Be sure to check out the FREE quote tool above to start your search!
What will happen to the life insurance you currently have?
Who gets what is a huge concern to parties in a divorce no matter how nasty or amicable it is. In most divorces, who gets the life insurance is a very important matter.
When you are taking an inventory of all of your property, life insurance is included in the inventory and can pose unique issues depending on the type of policy that you carry.
Unfortunately, when you begin negotiations, the issues that can arise surrounding the topic of life insurance are not always addressed.
Term Life Insurance on Parties Involved
One thing that you will learn as you discuss property division is that not all forms of life insurance are viewed and treated the same way. When property division is a concern, most states have laws in place that state that term life insurance is not marital property or community property.
This is because a term life insurance policy is one that will provide coverage for a specified period of time. This means that there will be no cash value or surrender value in the plan making it an asset.
Because it is not an asset, term life insurance is not divided among the husband and wife and will stay in effect for the named insurance with the named insurance becoming responsible for the premiums.
Permanent Life Insurance on Parties Involved or Children
Term life insurance may not pose any type of complex issues, but permanent products that hold a cash value will because they are seen as assets that were accrued in the divorce. If you have a whole life or universal life insurance plan, it will be treated as marital or community property.
This means that it is subject to property division and you will need to come to an agreement as to whether it will be surrendered or if you will keep the policy in force and offer the other spouse a credit for the value of the surrender.
In most cases, if the policy was purchased before the marriage is it defined as separate property and will not face division.
Because permanent life insurance premiums will stay level for the rest of the insured’s life, most couples will try to reach an agreement where the policy will stay in effect so that the coverage does not lapse.
Allowing the coverage to lapse can truly affect the children or adults involved. This is because they will ultimately have to pay higher premiums if they were to purchase a new insurance policy at their new age. Some may not even be able to medically qualify for insurance if they have medical conditions.
Group Life Insurance
Another issue surrounds what would happen if you had group life insurance through your spouse’s employer.
Many times, employers will offer benefits to both their employee and their spouse as an incentive to retain their employees.
If you only have group life insurance, you may argue that the divorce will leave you uncovered.
There may be an option to convert the group plan to an individual permanent plan.
The judge could order that a new plan be purchased and maintained by the other spouse in the form of spousal support.
What to do following a divorce?
No matter what the settlement says, it is very important to review your life insurance policies after a divorce so that they are updated. It is very common for spouses to have each other listed as the beneficiaries on their plans.
One spouse may even be the owner of the policy on their loved one. Once the divorce is underway, you should request that your become the owner of your own policy and that your children, a living trust, or someone else that you trust is listed as the beneficiary.
This will help prevent problems if your ex is still listed as the beneficiary when you have no legal responsibility to keep them as the person who receives the benefits if you die.
How can life insurance can be used to secure a settlement?
If you do not have life insurance or the policy that you have in place is not community property, life insurance could still be an important factor in the divorce. This is because divorce is commonly used to secure a settlement when one spouse is ordered to pay alimony to another or when the spouse is ordered to pay child support.
When life insurance is a requirement to reach a settlement, the judge will order that the party who is to pay support maintain life insurance coverage for a specified period of time.
The judge will state how much insurance must be purchased and also to what date the policy must stay in effect.
Most of the time, a term life plan is sufficient, but some judges may require a permanent plan in unique cases.
The purpose of requiring a party to maintain life insurance is to protect the exes financial future and their children’s financial future if the one paying the support were to pass away before their obligations went away.
This way, the death of one spouse does not terminate the property settlement agreement that the couple reached during the dissolution of marriage.
Mistakes to Avoid When Securing a Divorce Settlement
One of the biggest mistakes that you can make is signing a divorce agreement where you are negotiating the terms of life insurance before the spouse required to buy coverage has done so. If you do this and the spouse is unable to secure coverage because of their age or their health, there may not be any alternatives.
The best thing that you can do is require the policy to take effect before the divorce is final. You should also be sure that the amount carried is enough to cover your mortgage, debts, and dependent care costs through college.
The agreement should state that the premiums must be paid regularly and that the policy cannot lapse.
Sometimes, cancelled policies can go unnoticed because the beneficiary does not require their name to be listed as an owner.
The owner will be notified if the policy cancels and this is why it is important to protect your interests. Not only should you be the owner, you should also be listed as the primary beneficiary.
This ensures that, until the date ordered by the judge, your financial future will be protected.
You will be ordered support for a reason, and getting life insurance ensures that you get that support no matter what.
Checking Into Life Insurance Rates
You know your spouse better than anyone. If you are requesting that life insurance be required, it can be helpful to price the cost of insurance for your soon to be ex. You will need to do homework on life insurance rating classifications to find out if they qualify. If they do not, you may need to discuss alternative options to secure your future so that you have peace of mind.
Life insurance is an important tool at virtually every stage of your life if you choose the right product and you plan in advance. You will need to do your homework to ensure that you will be covered following your divorce.
If you will lose your insurance, you do need to find out how much you will pay for your coverage now. To find the best plan quickly, use a FREE online tool, such as the one below, that helps you compare rules.
These online systems require nothing more than your personal information and you can find out what insurance costs post-divorce.