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.
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When you and your partner divorce, you might have to maintain or buy life insurance, or you may need to surrender and split your insurance's cash value.
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If you and your former spouse have minor children or need financial support, keeping life insurance on your ex-partner may be best.
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Most states automatically revoke a spouse’s beneficiary status on a life insurance policy in the event of a divorce.
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All life insurance policies, including term, should be included in fact-finding during a divorce.
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Consult a lawyer or legal specialist for the best way to handle your life insurance needs and ensure coverage for yourself, your ex-spouse, and beneficiaries.
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.
FAQ
How is life insurance handled in a divorce?
Life insurance policies can remain in effect voluntarily or be mandated by the courts. The policies could be transferred from one spouse to another to ensure payments. Or you and your ex-spouse could obtain a new policy or policies to meet the needs of both sides.
Does divorce void a life insurance policy?
No, divorce does not invalidate a life insurance policy. In most states, a spouse will be removed as a beneficiary, leaving the proceeds to another designated person, the insured’s estate, or probate should the insured pass away.
Can my ex-husband take me off his life insurance?
Your ex-spouse might be able to remove you from their life insurance, depending on your specific circumstances. The insurance company might do so automatically following the divorce since most states rule that your ex-spouse no longer has an insurable interest in you. However, a divorce decree could require them to carry a policy on you as part of a settlement agreement.
Can a spouse fight for life insurance?
Yes, a spouse can fight for life insurance as part of a divorce settlement. Doing so might help ensure that you or your minor children will be financially protected if the other spouse passes away prematurely. You can take legal action to make your former spouse keep insurance if they fail to maintain a court-ordered policy.
- Lonich Patton Ehrlich Policastri, Attorneys at Law. The Ins and Outs of Life Insurance During Divorce.
- Cornell Law School Legal Information Institute. Nonprobate assets.
- Commonwealth of Massachusetts. General Laws, Section 2-804.
- Code of Virginia. § 20-111.1. Revocation of death benefits by divorce or annulment.
- Marcum Accountants and Advisors. Automatic Revocation Upon Divorce.
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