Divorces are typically very complicated and stressful experiences. Navigating this new life can be difficult, and the emotional nature of a divorce settlement is magnified when handling issues like alimony, child support payments, and the division of marital assets.
One of the things often overlooked in divorce agreements is life insurance. Nevertheless, it can play a significant role in divorce, especially if you have children or a mortgage. Considerations for life insurance after divorce include whether to change your beneficiary designations, or to purchase a new policy to ensure it financially protects your dependents.
Here’s what you need to know about what happens to life insurance in divorce, and life insurance beneficiary rules after divorce.
How divorce impacts a life insurance policy depends on a couple of factors.
The first is the type of life insurance policy you have. While there are many types of life insurance, the two most common are term life insurance and permanent life insurance (including whole life insurance).
As a financial consideration, existing life insurance policies will be assessed as part of your divorce proceedings. A term life insurance policy is not treated like a financial asset. However, the cash value of a permanent life insurance policy may be considered a joint financial asset.
The second factor is that a divorce settlement can also result in you having to purchase a new life insurance policy. Court-ordered life insurance is just that — the court orders you or your former spouse (or both) to buy life insurance to support the ex-spouse in case of your death.
You may also voluntarily purchase a new policy to protect children or dependents if the divorce decree results in you becoming a single parent.
When it comes to life insurance after divorce, you may want to adjust your existing life insurance policy to meet your new needs. Begin by reading through it to determine the amount and type of coverage, the coverage period, and the beneficiary or beneficiaries. You should also address beneficiary designations and children after divorce.
Most married couples with life insurance name their spouse as the policy’s primary beneficiary. However, after a divorce, you may not want your former spouse to benefit from your death.
The divorce laws of some 23 states automatically revoke a person’s beneficiary designation upon divorce, which necessitates naming a new beneficiary.
In divorce cases where you owe alimony or child support, the court may require you to keep your former spouse as the beneficiary on your life insurance policy.
If you remove your former spouse, you must name a new beneficiary (or multiple beneficiaries). That might be a new partner or spouse, your adult children, a trust, other friends or relatives, or even a charity.
If you have children, you may want to list them as the beneficiaries of your life insurance policy. While this seems like a good idea, you may want to reconsider. This is especially true if your children are minors.
In most states, a person must be 18 or older to receive a life insurance death benefit.
Additional complications occur in cases involving a beneficiary under the age of majority. These situations result in court-appointed guardians deciding how to administer the life insurance proceeds, which can take months or even years to resolve.
To ensure your children receive the death benefit according to your wishes, consider the following three options:
Protecting alimony and child support payments is a significant issue during a divorce. This is especially true in the following situations:
As part of your divorce decree, the court may order the higher-income spouse to buy a life insurance policy to protect future child support obligations. Select a policy that will provide coverage until all children are adults.
Life insurance can also secure alimony payments in the event of the paying spouse’s death. Under this arrangement, the life insurance payout (as a lump sum payment) would cover the total alimony obligation amount.
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Whether you need to obtain a new policy or update an existing one, there are many complexities surrounding life insurance and divorce settlements. Knowing how to address these challenges, like what disqualifies life insurance payout, can help you avoid wasting time and money. Here are some life insurance and divorce issues you may encounter and how to resolve them.
A divorce can lead to both parties wondering who is responsible for life insurance premium payments, especially with the additional complication of child custody arrangements.
If the divorce results in you obtaining primary custody and you have doubts about your former spouse’s financial dependability, you should consider becoming the policy owner and paying the premiums. This mitigates the possibility of lapsed payments and a loss of coverage.
A final policy ownership issue you may experience after a divorce is whether you can remain on a former spouse’s life insurance policy. No life insurance beneficiary rules prevent someone from keeping the same policy following divorce. However, unless the divorce agreement grants you ownership of the policy, this decision is entirely up to your ex-spouse.
Your divorce may leave you needing to purchase a new life insurance policy, perhaps for the first time. You want to buy the right amount of coverage to ensure the financial security of your loved ones in the event of your death.
Generally, your policy should provide enough coverage until your youngest child turns 18 (or 21 for more conservative estimates). Adequate life insurance coverage should account for the following financial obligations:
In addition to the amount of coverage, you’ll also need to choose the type of life insurance policy. Term life insurance policies are generally much more affordable than permanent life insurance policies, but there are pros and cons to both.
While life insurance policies are not assets, their cash value may be considered an asset. Term life insurance policies have no cash value and are generally not treated as marital assets. On the other hand, permanent life insurance policies with cash values are typically considered joint assets.
Life insurance doesn’t have to be complicated.
At Haven Life, we offer an easy way to buy high-quality, affordable term life insurance online. Start by getting a free online life insurance quote today, and apply for a policy that fits your needs.
“I'm so happy I chose Haven Life for my policy needs. The entire process was quick, easy, stress-free and convenient. Their customer service is top-notch.” - Sandra
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus
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Haven Life Insurance Agency (Haven Life) offers a simple online experience for buying dependable and affordable term life insurance. We're committed to making life insurance less time-consuming and far more rewarding.
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A medical exam is required for most Haven Term applicants, but never for Haven Simple.
Haven Term is a Term Life Insurance Policy (ICC21 HAVEN TERM in certain states, including NC; HAVEN TERM CA21 in California) issued by C.M. Life Insurance Company (C.M. Life), Enfield, CT 06082. In New York (DTC-NY) and in other states it is issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001.
Haven Simple is a Simplified Issue Term Life Insurance Policy (ICC20 HAVEN SIMPLE in certain states, including NC; HAVEN SIMPLE CA20 in California). It is issued by C.M. Life Insurance Company, Enfield, CT 06082.
Haven Secure is a Term Life Insurance Policy (ICC20DTR 0420 in certain states, including NC). It is issued by C.M. Life Insurance Company, Enfield, CT 06082.
Haven Disability is a Short Term Disability Insurance Policy (ICC20-HLSTDI-POL) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in Arkansas is 100139527.
Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas is 100139527.
Haven Life Insurance Agency is committed to making it simple for everyone to financially protect their loved ones. Ensuring our website is accessible to all is of fundamental importance to us, and we have worked with web developers, designers, and consultants to build it with accessibility in mind. Our website is designed in compliance with the Americans with Disabilities Act ("ADA") and other applicable law, and any changes or additions to it will comply with the ADA and other applicable law. If you encounter any accessibility issues with our website, please contact us at help@havenlife.com.
