What Happens to Life Insurance in a Divorce?

What Happens to Life Insurance in a Divorce?

Going through a divorce can be really stressful and complicated. There’s so much to think about and take care of. One thing that often gets overlooked is life insurance. What happens to your life insurance policy when you get divorced? Does it automatically cancel or change? Can your ex-spouse still be the beneficiary? This article will walk you through how life insurance works during and after divorce.

Life Insurance as Marital Property

In most states, life insurance policies purchased during the marriage are considered marital property. This means the cash value and death benefit are assets that get divided up in the divorce settlement, just like houses, cars, bank accounts, etc. For example, if you have a $500,000 policy, the cash value might be $50,000. So in the property split, your ex could get awarded $25,000 of the cash value.

There are some exceptions though. Term life insurance usually doesn’t have any cash value built up. So it may be treated differently and not split up. But check your specific state laws.

Changing Beneficiaries

Once the divorce is finalized, you’ll probably want to change the beneficiary on your life insurance. For example, if your ex-spouse was the beneficiary, you’ll likely want to switch it to your kids, a new partner, etc. The good news is you can change beneficiaries anytime.

Just contact the life insurance company directly and fill out their beneficiary change forms. Make sure you get written confirmation that the change went through. You don’t need your ex’s approval or anything like that. Beneficiaries aren’t set in stone.

Court-Ordered Life Insurance

If the divorce decree or settlement requires one spouse to pay child support or alimony, there may be a provision about life insurance. For example, the spouse paying support may be required to keep a policy in place for the other spouse. This ensures support continues even if they pass away unexpectedly.

The specifics like death benefit amount, duration, etc. will be spelled out in the divorce documents. The recipient will likely be made the beneficiary. Also, there may be clauses requiring proof that premiums are paid to date.

Buying New Policies Post-Divorce

After the divorce, you may realize you need more (or less) life insurance than you had before. Getting remarried or having more kids are common reasons for buying a new policy.

Shop around and compare quotes from several highly-rated insurers. Term life insurance is usually the most affordable option. And it only covers you for a set period, like 10-30 years. Permanent policies cost more but last your whole life.

Also think about health and age. Rates will be lower when you’re young and healthy. Consider getting coverage even if you’re not sure you need it. You can always cancel later if things change.

Other Considerations

Here are some other good tips when dealing with life insurance and divorce:

• Check the policy ownership. The owner controls the policy, not necessarily the insured person.
• Review loans against policies. Outstanding loans can reduce the payout.
• Look for clauses about ex-spouse beneficiaries. Some policies restrict this.
• See if you can convert group insurance to an individual policy.
• Evaluate if your needs have changed in terms of amount of coverage.

Consult the Experts

Dealing with life insurance in a divorce can definitely be complicated. Every situation is unique when it comes to asset division, support orders, beneficiaries, etc. Don’t hesitate to ask the experts for help ensuring you make the right choices:

• Talk to your divorce attorney about the legal implications.
• Discuss your coverage needs with an independent insurance agent.
• Contact the life insurance company directly with policy questions.

Divorce Often Means Life Changes

The dissolution of a marriage marks a new chapter in your life. You may have a different financial situation, career, goals, family, and responsibilities after the divorce. It’s smart to take a fresh look at your life insurance needs after such a major transition.

While dealing with life insurance probably isn’t the most exciting task, it is important. The last thing you want is for you or your loved ones to be without adequate coverage. So take the time to review your policy details and make any needed adjustments.

Going through a divorce is never easy. But planning ahead and understanding how life insurance works can provide peace of mind. You’ve got this!