Figuring out the details of term life insurance after divorce can be a little confusing, especially since life insurance policies tend to be tied to your spouse in one way or another. Whether you're the policyowner or your spouse is, you'll want to evaluate your future needs, the needs of your beneficiaries, and understand how life insurance can help you cover the financial obligations typically required by a divorce agreement. Follow along as we cover key points you might need to consider when it comes to term life insurance and divorce.
First, know that there's no one-size-fits-all solution
While our goal is to provide you with the most helpful material, this information will vary depending on your state's laws, the particulars of your divorce, and your unique financial situation.
Now, review the policy's original purpose
Take a moment to reflect on why you or your spouse originally purchased a term life policy. Was it to help one of you pay off the home mortgage in the event of the unthinkable? Pay off a car loan? Help out with short-term childcare costs? Evaluate whether the original purpose is still applicable and still a priority. Perhaps your children are old enough that they would not require child care, or perhaps one of you is willing to pay off the car note as part of the divorce settlement. If the original purpose of the policy is no longer applicable, you may want to consider adjusting the policy's amount, term length, or beneficiaries to align with your new priorities.
A life insurance policy could be required in the divorce settlement
Some divorce agreements state that one spouse, typically the parent who's paying child support or alimony, maintain life insurance on themselves in order to provide financial stability for their ex if they pass away before they've met their financial obligations. Even if there are no children involved, alimony payments from one spouse to another could still be required as part of the settlement.
"[Alimony] payments end at death," says family law attorney Mia Frabotta via NerdWallet, and because of this, "judges can rule that a term policy be purchased to provide security for child support or alimony payments." Because a term life policy is limited to a specific time period (term), it can be customized to conveniently end when support payments end too.
Make sure the policyowner matches the situation
This part is important, as the policyowner is the one who controls the policy. They are the only one who can change the beneficiary information and get policy information from the insurance company. While the policyowner is typically the one whose life is insured, this isn't always the case.
For instance, if you'll be the one receiving alimony payments and you're worried that your spouse may try to remove you as the beneficiary, you could opt to be the owner. Melody Juge, managing director of Life Income Management agrees. "If your spouse has an insurance policy that you're depending on to take care of you and your kids if he [or she] dies, you should have [the] ownership changed to yourself instead of your spouse. If not, your spouse could change the beneficiary or simply stop paying the premiums," she notes in an interview with Bankrate. Note, however, that transfer of ownership would be subject to the individual policy provisions. Many policies provide that they cannot be assigned.
Review your named beneficiaries
It's common for married couples to list their spouse as the primary beneficiary on their life insurance policy. When you cut ties with a spouse, you may automatically assume that means removing them from your life insurance policy, but that may not be the case.
Similar to the situation noted above, if you're the spouse who's required to pay alimony or child support and you're also the one whose life is insured, you could be required to designate your ex-spouse or children as your beneficiary, depending on your divorce settlement. If the divorce settlement does not require that your ex-spouse remain the primary beneficiary, there are few reasons to continue having them as your beneficiary post-divorce.
Changing or updating beneficiaries is also something that's commonly forgotten, notes Howard Hook, a professional accountant with Access Wealth Planning. "If you forget to change the beneficiary of your policy and you pass away, your ex-spouse could get the money instead of your new spouse."
Get help, ask questions, and stay informed
Like we said before, there's no one-size-fits-all solution when it comes to figuring out term life insurance after a divorce. Empower yourself with knowledge and reach out to an insurance professional to help make the best decision for your financial future. Start by calling one of our experienced representatives at 1-877-GO-DIRECT (1-877-463-4732). We may not be able to help with the heartache, but we can certainly help you sort through the headache of dealing with life insurance after a divorce. Give us a call or stop by a Direct Auto & Life Insurance location near you today.
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*Policy terms and conditions apply. Individual term life insurance by Direct General Life Insurance Company, Nashville, TN. Policy 58TL02010713. Premium and other terms will vary by state, the insured's age, and the selected coverage.