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Life Insurance And Divorce
Article 6 of 12 in Is Life Insurance Right For Me?
After a divorce, there are many decisions to be made, including what to do with any family life insurance that you and your former spouse may have held together. You will need to make a change to your existing life insurance policy and figure out a new life insurance plan to reflect your new lifestyle and support obligations.
TIP: If you have any questions about how to adjust your life insurance after divorce, ask an experienced insurance agent for assistance.
Changing the Beneficiary
After your divorce, you may not want your former spouse to remain on your life insurance policy as the beneficiary. In this case, the most obvious choice would be to name your children as your beneficiaries. If your children are young, you may want to choose a life insurance trust as the beneficiary and spell out within the trust how and when the proceeds are to be given to your children.
If you do not have children, then consider who will likely be responsible for your estate. You can name your siblings, parents or other family members as beneficiaries. For small policies such as final expense or burial policy, some name a funeral home as the beneficiary.
TIP: Naming your estate as the beneficiary will force your death benefit to go through probate, which could be a lengthy process.
If you have no one to name as a beneficiary, you might consider surrendering your life insurance policy for the accumulated cash value. However, consider this before you surrender your policy! As you age and your health deteriorates, it becomes more and more difficult and expensive to buy life insurance and your situation could change if you were to remarry, and keeping the policy you bought while you were married could prove very helpful in the future as it could help you and a future spouse maintain a life insurance portfolio.
TIP: At the end of the day, you may not be permitted to remove your spouse as your beneficiary. It is not uncommon for parties who have support obligations such as alimony or child support to be required to keep a life insurance policy on their former spouse. This way the support obligation will continue after death.
Community Property and Life Insurance and Divorce
If you live in a community property state and your permanent life insurance policy was purchased during your marriage then it could be considered community property and you may need to surrender some of the value of the policy as part of the divorce decree. Check with an attorney before removing your spouse as a beneficiary before you divorce, especially if you live in a community property state. If you do not get removal permission from your spouse, some or all of your death benefit may revert to them.
You may have decided that you just do not need as much life insurance after a divorce. There are a few things to consider before determining whether or not to lower your life insurance death benefit after a divorce. Consider the following:
- How much debt do you have? Your life insurance death benefit will help your beneficiaries pay off your debts. After a divorce it is possible that you could have more debt than you had before the divorce, in which case, don't lower your death benefit.
- Who are your beneficiaries? If you have children as beneficiaries to your policy, consider their lives and care in the event of your death. As a divorced parent, you cannot count on your other spouse to be able to support your children alone and put them through college. You may actually need MORE coverage as a single parent.
- If you have children, who will maintain your home in the event of your death? Will your home need to be paid off for the children to continue living there and what about the expenses of running that home until they are of age? In such cases, do not lower the death benefit.
Be sure to take an objective look at your current debt and responsibilities as well as those that could come in your future before you adjust your policy.
Changes to a Spouse Rider or Joint Insurance Policy after Divorce
A spouse rider is a death benefit for a spouse that is part of an existing policy rather than a policy of its own. After a divorce, there is no longer any spouse to be covered by the rider. You should contact your insurance company immediately after the divorce. They will probably require that you send a copy of your divorce decree to remove the rider. Your premium will be reduced after the removal of the rider. If your former spouse needs life insurance, take a look at your individual policy to find out if there are any conversion provisions that he or she can take advantage of in order to get their own policy. If you have a child rider, there would be no change to the rider as a result of your divorce.
If you have a joint policy, you cannot assume that your newly divorced spouse will keep up the premiums. If you are still young enough and healthy enough, try to secure a single life insurance policy on yourself. If this is not an option and the two of you have children, perhaps you can agree to maintain the policy for the benefit of the children in the event you can not get other life insurance. If there are no children or property to maintain, you might consider canceling the policy.
Divorce brings on many changes. Life insurance after divorce is just one of the many necessary things requiring your review and immediate attention. If you are in need of a new plan after your divorce, start shopping and comparing quotes to make sure your loved ones are still protected. Contact a life insurance agent today to get advice and to get a quote on a low cost life insurance policy as soon as possible.
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