Broker Check

Life Insurance & Divorce

| April 18, 2023

      If you have recently separated from your spouse, this article may help you better understand how a divorce may impact your existing policy and the steps to consider taking as you move forward.  

      Significant life events such as marriage and the birth of a child can impact the need for life insurance. Separation and divorce can also impact your need for life insurance and significantly in some cases. In addition to alimony, child support payments, and the division of marital assets, the court may weigh in on life insurance as well. Those who already have a policy may need to make adjustments to ensure that the policy reflects their new situation. Those adjustments may include things like changing a beneficiary.  

      In fact, sometimes the court may mandate individuals who do not already have life insurance to purchase a new life insurance policy in their divorce decree. In a growing number of divorce cases, the court will order one or both parties to purchase a life insurance policy as part of the overall divorce settlement. The policy is typically meant to serve as financial protection for the ex-spouse and any minor children who depend on the higher-earning spouse for financial support. However, while a divorce decree or separation agreement may require that you purchase a policy, the type of life insurance and how much coverage you purchase is sometimes decided on by the court and other times it will be left up to you to decide. A good place to start determining how much life insurance you'll actually need is calculating how much alimony or child support you're responsible for until your youngest child is out of the house and financially independent. 

      What type of policy should you get? There are more than a few different types of life insurance, but whole life and term life policies are typically the most popular options. Whole life insurance policies provide permanent, life-long coverage with the added advantage of having an accumulated cash value: a tax-advantaged asset that may be accessed at a future point during your lifetime. Term life insurance is typically less expensive, but coverage is limited to a specific period. The periods of coverage are normally 10, 15, 20 or 30 years of coverage. A regular term policy does not have the cash accumulation feature. Another downside is that when a term ends, your beneficiaries will not receive any funds from the policy if you pass away after the term.  

      If you currently have a policy, you may want to adjust your coverage as you undertake a separation or divorce. Begin by reviewing your policy to determine the amount and what kind of coverage you have, how long it will be in effect or last, and the named beneficiaries. If you have a permanent policy (whole life, variable universal life, or universal life), contact your life insurance company to determine how much cash value has accumulated. Then consider the following to help ensure the policy continues to meet your needs. 

  • Does it satisfy any court mandates? 
  • Do you need to update your beneficiaries? 
  • Is the death benefit large enough to protect alimony and child support? 

      Every state is different, but any life insurance purchased during the marriage could be considered marital property. If so, your policy and any accumulated cash value will typically be counted in with all your other assets that may be divided upon divorce.  

      If you have a financial professional, ask them what kind of coverage is best for your financial circumstances at the time of the divorce. Or you can just reach out to us and speak with a licensed insurance professional.