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Divorce and Finances

Life insurance after divorce

After divorce, you may need to update your life insurance policy or even buy a new one to insure income protection for child support or alimony.
Sorting out life insurance after a divorce can be a little confusing, and it's important to understand all the implications a divorce can have on this area of your finances. Life insurance is often connected to your spouse in some way, and you'll want to evaluate your future needs as well as your beneficiaries to ensure you've covered all your bases. Here are a few points you might need to consider before you finalize the proceedings.

Changing beneficiaries

If you have a life insurance policy on yourself, chances are you listed your spouse as beneficiary - or the person to whom a payout would be made if you died. Depending on your situation and the presence of children, you might consider changing your beneficiary designation. Likewise, if you have a will, you may need to make changes to it to reflect your current wishes should you pass on. 

Insuring future alimony and child support payments

Will you receive alimony and/or child support after your divorce? Then you should explore options to protect this income. After you are divorced, and your ex-spouse dies, this money will stop. Financial advisors may suggest, among other things, that you purchase a life insurance policy on your ex-spouse. The policy should be sufficient to replace the money you are expecting to receive in alimony and child support payments and would require their authorization.

Depending on your situation, it might make more sense to pay the premiums yourself. This protects you from depending on the person you are no longer married to in order to keep the payments current. Missing payments can cause the policy to lapse.

Splitting cash value

Some types of life insurance build cash value. This is money in the policy that you can access while you're alive. Permanent* life insurance policies like whole life insurance or universal life insurance build cash value. Term life insurance policies, however, don't build cash value. Life insurance cash value is an asset, and can be considered a marital asset during divorce proceedings.

It's important to understand your life insurance coverage and options before getting divorced to ensure you have the right protection in place after your divorce. Understanding policy ownership, options for beneficiaries and how to provide for children are critical considerations but may not be the only things you need to review in your personal situation. It's always wise to speak with your financial advisor or lawyer so that you don't have to navigate these proceedings alone. Your preparation, and some sound financial advice, can go a long way toward making this transition a little smoother for you and your family.


* As long as required premium payments are timely made.



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