When married with a young family, couples generally look to life insurance as a way to protect the well-being and future of loved ones should one parent die. If both parents are wage earners and one were to die prematurely, it is unlikely that the surviving spouse would be able to keep up with household expenses and pay for child care with the remaining income.
However, life insurance can be just as important in a divorce. If you are receiving child support or alimony payments, you may want to consider protecting those payments by insuring the life of your former spouse. Generally, a traditional term life insurance policy is appropriate in most cases, as you are trying to ensure the child support payments continue until your youngest child turns 18. The death benefit should be in line with what you’d receive in support payments.
As for the policy itself, you have several options. If there is an existing policy in place on your ex-spouse, you could be named the beneficiary. In this case you need to be aware that you will have no control over the policy, so your former spouse could take out loans on the policy, which would reduce the death benefit, or he or she may fail to make premium payments. You may also opt to have existing life insurance policies transferred to you, which would prevent your former spouse from taking loans or making changes to the policy. You may agree in the divorce agreement that your former spouse is required to continue to make payments. If the divorce is already final, you can purchase a new policy on your former spouse. However, in this case, your ex may not be willing to submit to required physical exams during the underwriting process.
As a noncustodial parent, you still may want to consider a life insurance policy on your former spouse. Should your children’s custodial parent die, responsibility and the associated costs of raising the children will go to you. Typically, there is little need to use an irrevocable life insurance trust, as the death benefit from a policy on a former spouse should not push you your estate beyond the current $5.43 million estate tax exclusion.
Another area you’ll want to pay particular attention to is accounts that pass by beneficiary designation rather than by your Will. Retirement accounts or other insurance policies through your employer may still list your ex-spouse as the primary beneficiary. While this may not be an immediate concern, it can quickly become a concern should you die—especially if you have remarried and your current spouse finds out your ex-spouse inherits your 401(k).
You should also update your Will, a durable power of attorney and advance medical directives you have in place, as a divorce may not revoke these documents, depending on state laws.
Even after your divorce is final, there are still several steps to take to protect your assets and your family’s financial future. If you have questions regarding how life insurance can benefit you after a divorce, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
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