Life Insurance and Divorce: 3 Things to Consider

When it comes to life insurance and divorce, there are several important considerations to make, yet they often get overlooked. Other big (and sometimes messy) tasks—such as determining custody, dividing assets and hunting for a new home—often take priority.

However, addressing your life insurance policy is a critical part of the divorce process. If you and your ex-spouse have children, figuring out your life insurance is even more crucial.

If you’re going through divorce, here are three things you need to consider when it comes to life insurance.

1. Life Insurance and Divorce: Reconsider Your Beneficiary

If you bought life insurance while you were married, chances are your ex-spouse is the beneficiary on the policy. The beneficiary is the person to whom the life insurance pays a cash benefit if the insured person dies while the policy is in force.

That being said, if you’re getting divorced, it’s likely that you no longer want your ex-spouse to receive your life insurance benefits if you were to pass away.

If you and your spouse don’t have children, you may consider naming another loved one as your life insurance beneficiary. This person can use the cash benefits to cover any final expenses you may have, and then keep the remaining benefits. You could also consider naming a beloved charity as your life insurance beneficiary. This is a relatively low-cost way to give a big donation to your favorite cause.

If you and your ex-spouse do have children, you’ll want to consider your children’s future when deciding on your life insurance beneficiary. You have a few options if your children are minors:

You can leave the money for the child’s benefit to a reliable adult whom you trust.
You can set up a trust to benefit the child and name the trust as the beneficiary.
You can name an adult custodian for the life insurance benefits under the Uniform Transfers to Minors Act (UTMA).

2. Life Insurance and Divorce: Account for Your Cash Value

Permanent life insurance is a category of coverage that can be kept in force for a lifetime. Universal life insurance, variable life insurance, and whole life insurance are examples of permanent life insurance, and these types of policies typically build cash value.

Because your life insurance cash value is part of your net worth, you’ll likely need to list the life insurance policy and its cash value among the marital assets to be divided. If your assets are divided evenly, you and your ex-spouse will each get half of the policy’s cash value. Talk to your divorce attorney and insurance agent about handling your life insurance cash value during divorce.

3. Life Insurance and Divorce: Protect your child support or alimony income

Do you receive child support or alimony income as the result of divorce?

If yes, you should consider what would happen if your ex-spouse were to pass away, and that monthly money stopped. Would you still be able to ensure your children have everything they need without the child support? Or, could you still make ends meet without the alimony?

If the loss of child support or alimony would put you in a financial bind, then it may be wise to purchase a life insurance policy on your ex-spouse. The cash benefits from a policy on your ex-spouse would financially protect you—and your children, in the case of child support—if your ex were to pass away.

So, how does purchasing life insurance on someone else work? You of course cannot take out a policy on someone without his or her knowledge. The insurance company will need to see that there’s a relationship, and that your ex-spouse’s death would be a true financial loss for you.

You will need a bit of cooperation from your ex-spouse in order to take out a policy on him/her. Your ex-spouse will need to sign the application and give the insurance company permission to collect data. Your ex-spouse may also need to undergo a life insurance medical exam as part of the application process. For more information, talk to your insurance agent about purchasing a life insurance policy on your ex-spouse.

Want more? Check out our blogs, 4 Life Insurance Considerations for Parents of Children with Disabilities and How to Handle Life Insurance and Divorce.

We’re here when you need us most

Bankers Life is here for you when you need us most! If you’re going through a divorce, your Bankers Life agent is here to help with the information you need to change your beneficiary and/or purchase a new policy.

Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing and service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisers