Eleonore Weber, CLTC
Your Life Security, LLC
When most of us think of taking out a life insurance policy to protect our dependents in case of a life-changing event, we generally tend to think of our spouses and children. But what about ex-spouses?
Depending on each spouse's financial situation at the time of the divorce, legal counsel and/or court will usually order one partner to pay alimony (or maintenance) to the other in order to support them financially through this particular life transition. If children are involved, the non-custodial parent is also required to pay child support, which may or may not be in addition to alimony. Regardless of whether you're paying alimony or child support or both, the fact remains you have people who are financially dependent on you, even if you're no longer married to that person or living with the children full time.
When going through a divorce, it is important to protect yourself and your loved ones. Insurance, especially Life Insurance, is a valuable tool. What if the former spouse dies and the ex-spouse is left with nothing? In addition, there are valuable benefits for Life Insurance coverage for both parties, since loss of the primary custodial caregiver also has costly ramifications.
This is where a Life Insurance gains value because it guarantees the surviving ex-spouse replacement income.
TERM LIFE VS. WHOLE LIFE INSURANCE
If you already have a life insurance policy at the time of the divorce, which will be taken into account by the court, although an additional policy might be recommended in order to ensure future custodial responsibilities. There are a wide variety of Life Insurance options, but the basic types are temporary and permanent Life Insurance. A term (temporary) life policy has no surrender or cash value, but a whole life policy (which offers lifelong coverage), does have surrender and cash value and, as such, will need to be divided along with the rest of the financial assets in the final divorce. Note the below chart outlines the basic Advantages and Disadvantages for Term & Whole Life Insurance plans.
If you're already divorced and thinking of taking out a life insurance policy for your ex-spouse and/or children, you have options on how long those policies will last. For example, when paying life insurance in which your children are the beneficiaries, you and your partner might decide to maintain a life insurance policy only until your children turn 18, or until they graduate from high school or college.
If the life insurance policy is intended to help support your children in the event of your death, keep in mind that insurance companies won't make payments to minors, so make sure you make the custodial parent the beneficiary, or (if you are the custodial parent) your children's other parent or designated legal guardian in the event of your death.
Depending on which state you live in, the court may order you (and your spouse) to take out a life insurance policy as part of the divorce proceedings. Even if they don't, it's a good idea to make sure those who are financially dependent on you are protected in case of a life-changing event.
On the other hand, if you're the one expecting to be paid alimony and/or child support, talk with your attorney about including a requirement for a life insurance policy into the divorce agreement. You may want to take out a life insurance policy on your ex-spouse and make the payments yourself. This means you won't rely on your ex to make the policy payments and keep you and/or your children as the beneficiaries. Depending on your relationship with your ex and how reliable you believe them to be, this may be the better option.
Whenever possible, make sure you are the owner of the policy so your ex can't change the beneficiary at will. If your ex is the owner of the policy, check in on the policy at least once per year to make sure it is still active and you and/or your children are still listed as the beneficiaries. Discuss these important issues with a trusted professional advisor(s) to ensure financial certainty.