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How Life Insurance Works During and After a Divorce

During a divorce, the issue of life insurance deserves your utmost attention. This is especially true for couples managing alimony, child support, and financial resources for minor children. Insurance coverage is a source of financial protection and could be a marital asset that needs to be split.

Key takeaways:

Sometimes, you may need to obtain insurance for your former spouse and list them as a beneficiary. When it comes to life insurance after divorce, make sure you know what adjustments to make to satisfy court orders and your financial needs.

What’s the best life insurance for married couples?

Married couples can choose term or permanent life insurance. What works best depends on your financial situation, goals, and how long you need insurance. Many people carry both types of coverage.

Life insurance companies offer joint policies for married couples and domestic partners, although it might be more economical to buy separate policies.

Types of life insurance

Whether your life insurance policy is an asset will depend on the type of policy you and your ex-spouse are carrying.

Term life insurance is the most affordable and lasts for a limited time, such as 10, 20, or 30 years. However, it carries no cash value. If you or your spouse outlive the policy, the policy expires with no payout. You can often convert a term life policy to a permanent option.

Permanent life insurance, which includes whole and universal life, can last for the insured's lifetime. Some individuals and couples use this coverage as part of their investment strategy. Burial insurance, final expense insurance, and survivorship life insurance are types of permanent policies people can purchase.

If you decide to divorce, your insurer may allow you to split your policy into two individual policies.

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How life insurance works during a divorce

Even in amicable breakups, divorce can make life insurance quite complicated. Reviewing policies and deciding what to update, change, or cancel is important during the divorce process. Prepare to discuss any individual, joint, and group policies you own or name you as an insured person or beneficiary. Otherwise, you and your spouse could face legal consequences, depending on the laws in your state.

Legal experts advise against changing or canceling life insurance policies until the divorce is final. If you are concerned that your soon-to-be former spouse will not carry insurance on themselves or your dependent children, speak with a divorce attorney and insurance agent about your options.

As with other life changes, divorce brings the need and opportunity to adjust life insurance coverage according to your new situation and goals. You might consider changing:

  • Term to permanent policy (or vice versa)
  • Beneficiary designations
  • Coverage amounts

Life insurance beneficiary rules after divorce

Beneficiary designations on a life insurance policy do not automatically change upon a divorce. The policyholder must contact the insurer to request a change of beneficiaries.

Whether you live in an equitable distribution or community property state, the laws will provide for handling non-probate assets in divorce. Non probate assets include jointly held properties, life insurance proceeds, and certain trusts.

In certain states, life insurance can be awarded for child support to help meet the minor’s financial needs beyond the parent’s death. A judge may order this arrangement if they believe the ordered parent will have difficulty providing for the dependents.

Some states also award life insurance for spousal support. The ordered spouse must buy a policy and name the other spouse as the beneficiary.

If life insurance stipulations are not included in the final divorce decree, you and your former spouse can change or cancel policies as you see fit.

Avoiding policy lapses

Life insurance is active only as long as premiums are paid timely. If the policyholder stops paying, the policy could lapse without your or the court's knowledge. You can avoid this situation if you:

  • Send the divorce decree to the insurer with instructions to inform the beneficiary of policy changes or missed premium payments.
  • Own the policy and make the payments.
  • Ask the court to add the amount of life insurance premiums to the alimony or child support provisions, with the beneficiary responsible for the premium payments.

Revocation upon divorce statutes

However, more than 40 states have a “revocation upon divorce” law that automatically removes a spouse as a beneficiary following a divorce. Upon the insured’s death, contingent beneficiaries become primary beneficiaries. The insured’s estate goes through probate if no contingent beneficiaries are listed.

If you want your ex-spouse to remain a beneficiary, you must file new paperwork or draft a settlement stating your wishes. Remember to choose contingent beneficiaries in addition to primary beneficiaries.

Life insurance is often one issue married couples overlook during a divorce, but it is essential to keep it in place. Be aware of your state’s laws and current policies to maintain the coverage you need. Contact an insurer and legal advisor with questions about your life insurance and divorce.

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