Many people do not realize the role life insurance plays in divorce. Life Insurance is important to support alimony payments in death, but more importantly child support payments.
Life insurance is usually recommended until the financial obligations from one ex-spouse to the other ex-spouse are finished. Sometimes financial obligations are mandated by the separation agreement and sometimes they are not. It will be up to you and your lawyer to decide how to structure your agreement. We cannot provide legal advice, but will provide some ideas for you to think about.
A qualified insurance expert can assist you in determining how much life insurance is the ideal amount to consider. You do not want to pay more in premiums than you need. You should not be over insured, nor should you have too little insurance.
In addition to any mandated life insurance, you should evaluate your insurance needs based on your specific circumstances. As an example, you may have elderly parents that rely on you, or children from a previous marriage. You may be able to cancel a policy no longer needed. Divorce changes many aspects of your life and it is advised both parties of the divorce re-evaluate their own separate needs.
If the separation agreement requires that a payer spouse maintain a life insurance policy and he/she is required to pay for it, we recommend the beneficiary be responsible for making the payments and getting reimbursed. This better protects the beneficiary and makes it easier for the payer spouse.
Lapse policies are common and even more common in divorce. This does not mean it is intentional, but divorce is a stressful time and insurance payments are not always top of mind. Make sure to keep your insurance policies current.
If your policy lapses, the beneficiaries (ex-spouse and children) are the ones who lose, so it is important to align interests and have the beneficiaries make the payments.
Yes, both parties can be notified of a lapsed policy. We recommend that both ex-spouses be put on the insurance company’s list to be notified. Neither people want a policy that is protecting your children to lapse. You want to make sure that your insurance is always in-force.
If your policy lapses and the insured person dies before you reinitiate coverage, the insurance company will not pay your claim. You have no coverage! This is why it is so important to not let your coverage lapse and if you do lapse, reinitiate coverage as soon as possible. To get your coverage back you may need to take another medical exam. It is also possible your insurance rates will go up. You have to show proof of insurability to maintain your coverage.
Yes, the owner of the policy can change the beneficiary. However, there are ways to prevent this.
Divorce can be a very stressful time. Insurance can be complicated and we advise involving us early on so we can help find the best solution to protect both interests in a fair way.
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