What to Do with Life Insurance Policies After a Divorce
When someone decides to take out a life insurance policy, he or she usually does so to protect his or her spouse, children, and other dependants in the event of the person’s death. However, when spouses separate in a divorce, those life insurance policies and their beneficiaries get thrown into question, especially when one or both ex-spouses remarry. Questions arise, such as: Who should take out or pay for a policy? Who should be the beneficiaries? Is the policy a marital asset?
The policy owner and the insured can be the same person or different people, but we will emphasize again that only the policy owner can name the beneficiaries and make payments to the insurance company.
What Happens to the Policy After a Divorce?
Initially, when a couple divorces, absolutely nothing changes. Since life insurance is a contract between the policy owner and the insurer, if the owner does not change anything on the policy, the policy does not change, including the beneficiaries. The policy owner can make changes, including designating new beneficiaries or having the death benefit go to the insured’s estate to be divvied out in accordance with the insured’s will. While this seems pretty cut and dried, the legal proceedings and divorce settlements can complicate the matter.
In amicable divorces, ex-spouses frequently leave their life insurance plans alone, but many divorces are not so friendly or as simple, which can lead to disputes between exes. Many policy owners do not want to leave their exes as beneficiaries, instead wishing to take the exes off the plans and list their new spouses as beneficiaries or leave their children or other dependants with a larger piece of the death benefit.
These disputes should be handled in court, where a settlement will be agreed upon. Financial obligations like alimony, child support, asset distribution, and other issues brought up in the divorce settlement will also be handled in court.
Is a Life Insurance Policy a Marital Asset?
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There are many life insurance policies from which to choose, and the best one for you might not be the best for someone else. If you need lower premiums, a term life insurance policy might be a good option. If you are looking for insurance that provides investment opportunities and does not expire until you pass away, a universal plan is an excellent choice. Speak to a TopLine Life Insurance broker to discuss your options.
A life insurance premium is a regular payment you must make to your insurance company to pay for your life insurance policy. Continuous payments will keep your plan active, while missing payments could cause it to lapse. Different policies have different requirements for premium payments, so research possible policies and contact us at TopLine to find the right plan for you.
This answer differs from person to person and is mostly dependant upon your finances. Typically, your minimum amount should be enough to cover your mortgage, loans, credit cards, and any other outstanding payments and debts.
Other considerations include:
- College tuition assistance for your children or grandchildren
- Income replacement for your spouse
- Estate planning
Speak with a TopLine life insurance broker to avoid over or under-insuring yourself.
Generally speaking, buying a life insurance policy when you are younger and healthier gives you a better chance of locking in a favorable policy premium. By purchasing a plan now, you can guarantee your “insurability” for the future. You won’t have to stress about higher premiums when you get older and possibly experience health issues. Talk to one of our brokers about the best available policies for you.
A beneficiary is a person listed on your life insurance policy which is the full or partial recipient of the death benefit provided by the policy. Anyone can be a beneficiary, and there can be multiple beneficiaries on the same plan. Note: No one is automatically listed as a beneficiary, including your spouse and children, so be sure to indicate your beneficiary choice(s) at the time of your policy purchase.
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