Life Insurance and Divorce Decree
Even if you and your spouse are in the process of separation, the impact of life insurance and divorce typically needs to be considered. This is particularly the case if you have children or others who are depending on you and your ex financially.
There are a number of factors that need to be thought out, such as beneficiary changes, re-allocating assets, and determining your post-divorce financial objectives and obligations. This post will provide the key steps that you need to take.
How to Get Life Insurance for Divorce Decree
Life insurance can actually be a central point in many divorce cases. That is because a number of issues need to be determined, such as the policy owner(s) and the policy beneficiaries. In this case, the marital settlement agreement should settle the status of the coverage. It will also outline the requirements for how coverage should be handled once the court has finalized your divorce decree.
The need for life insurance usually changes after you get divorced. In many divorce settlements, though, there includes the granting of alimony and child support for the spouse who may depend on the other financially.
For instance, the payment of alimony is designed for helping the dependent spouse to maintain their lifestyle. In addition, child support may be arranged for helping to cover the cost of childcare, along with other expenses that are related to the child(ren)s’ needs.
Therefore, even in the most bitter of divorces, carrying life insurance on an ex-spouse can be essential. That is why courts often order exes to carry coverage on one another, at least until their children reach the age of 18 or 21 (depending on the state).
Because an ex-spouse may stop paying the life insurance premium, though, it can help to have the beneficiary also be the owner of the policy. That way, the beneficiary will be notified by the insurance carrier if the premium has stopped being paid. In this case, it can also be helpful to have the insurance carrier hold the divorce decree, along with instructions to notify the beneficiary if there is a change to the policy (including the premium payments).
In order to ensure that you’re getting the right amount and duration of coverage, working with a life insurance specialist like Insurance Geek can help. We are experts in designing coverage based on your specific needs and time frame.
Underwriting – What is Involved?
Life insurance underwriting requirements can depend on the type of policy that is being applied for, as well as the amount of benefit. As an example, a fully underwritten policy will require an application that asks both personal and health-related questions about the insured.
The insured will oftentimes also be required to undergo a medical examination. This consists of meeting with a paramedical professional who will take blood pressure and heart rate readings, as well as collect a blood and urine sample.
If the insured has various health issues, it may be beneficial to instead apply for a guaranteed issue policy. These policies require mo medical exam and are issued with no health questions asked. These policies will remain in force, as long as the premium is paid – even if the insured has certain medical conditions.
Guaranteed issue life insurance policies can also be issued more quickly than a fully underwritten plan because there are no medical exams or physician’s records to review. The downfall is you have limited coverage amounts of up to $50,000 in coverage and these typically will not satisfy the amount of death benefit required by a divorce decree.
How Long Can It Take to Covered?
Getting life insurance coverage in place does not have to take long, but it will depend on the type of policy you are getting, as well as the amount of coverage. In some cases, an insured will have to go through full underwriting – which can sometimes take several weeks or longer.
In other cases, when there are no medical records to review, coverage can be put in place very quickly – possibly even on the same day, it is applied for if you can qualify for a no medical exam policy.
What Does the Ex-Spouse Need to Know?
In some divorce cases, neither of the spouses has a life insurance policy – so the court may order one or both to purchase coverage as a part of the settlement, and in order to ensure the financial security of the couple’s children (which could include the payment of college tuition).
When it comes to life insurance and divorce, the ex-spouse will typically need to know a number of things, such as:
- If life insurance coverage is being purchased on him or her
- If he or she is being removed as the beneficiary of a current policy
- The type and amount of assets held by their former spouse
- Future pension income amount (if applicable), so that income can be protected for the surviving ex-spouse in the event of an early death
Typically, you can buy a life insurance policy on your ex-spouse. But doing so will usually require his or her consent. You should also have an “insurable interest” in your ex if you are buying life insurance on him or her and naming yourself as the beneficiary. If your ex-spouse is paying child support and / or alimony, though, you will be considered as having an insurable interest.
Additional Considerations Regarding Life Insurance after a Divorce
There are many tasks that need to be undertaken during a divorce. One of the biggest of these is making sure that your children won’t suffer financially in the event that you or your ex passes away.
In addition to the proper type and amount of coverage needed, there can be other considerations, too, such as:
Marital Property Considerations
If your ex-spouse has a life insurance policy, it could become part of your divorce settlement. In some states, permanent life insurance policies are generally considered marital property, with the cash surrender value being subject to equitable distribution.
Does a Divorce Decree Nullify a Life Insurance Policy?
A divorce decree will not nullify a life insurance policy.
However, it could require that if the life insurance coverage were to lapse – and the policy owner passes away – the custodial or non-custodial parent would then be entitled to a portion of the estate that is equal to the death benefit in the lapsed insurance policy.
Updating Life Insurance Beneficiaries After Divorce
In most cases, married people list their spouse as the primary beneficiary on their life insurance policy. So, if you are going through a divorce, what should you do now?
The answer depends on several key criteria, including whether or not you have children who would need financial protection if you or your ex-spouse passes away. In this case, it can make sense to still carry life insurance on your ex.
Prior to changing the beneficiary, you’ll need to find out if you can make a change (revocable), or if you are not allowed to change the beneficiary once they have been designated (irrevocable).
The easiest way to update life insurance beneficiaries after divorce is to contact your insurance carrier that your policy was purchased through.
Regardless of someone’s status as a spouse, life insurance benefits are typically paid out to the named beneficiary on a policy. But in some instances, an ex-spouse may not be eligible to collect the benefits – even if he or she is named as the beneficiary on the policy.
For instance, the policy could contain a provision that excludes a beneficiary whose spousal status does not exist at the time of the insured’s passing from collecting the benefits.
Also, a divorce decree could state that the ex-spouse is no longer eligible to receive the life insurance proceeds. There are even some states that have laws that revoke an individual’s beneficiary rights upon divorce.
How Life Insurance Factors into a Divorce Settlement
Life insurance can be an important factor in the divorce process. This is particularly true if you and your ex-spouse have children. Getting – or keeping – life insurance in force can protect the financial interests of all the parties involved.
During a divorce, beneficiary changes may be necessary for existing policies. It could also be that one or both of the ex-spouses need to purchase coverage to ensure that dependent children won’t suffer financially.
Need Additional Information?
If you still have questions about life insurance to satisfy a divorce decree, we can help. We know life insurance. Not only are we experts in finding the right coverage, but we can also help to answer questions that you may have regarding a policy, as well as other major life changes.
Need to know more? Just contact us.