Throughout the process of divorce, many logistics need to be settled, sorted and agreed upon. These items can range from asset allocation, property distribution, and possibly child custody. Something to consider beyond this time is the financial support that one spouse may offer the other.
In traditional spousal support payouts, if the financial supporter passes away, the payments to the ex-spouse can sometimes also halt with the death.
Whether there is a legal obligation through court order alimony or a voluntary choice to provide spousal support, people making arrangements around this financial responsibility may also consider life insurance benefits during divorce as an option to proactively protect payments being made, regardless of the living status of the policyholder.
Discuss Your Options
The first step in deciding and navigating your life insurance as a divorced couple is to consider your circumstances, which may involve children, mortgages, or a business in the picture. If this is your first time purchasing a policy, it is also crucial that you understand the several factors that play a part in determining life insurance rates. Your health, age, specific hobbies, gender, and several other factors can impact the amount you will pay for a plan. Therefore, life insurance plans will vary greatly from person to person in terms of what they need out of a plan and the type of coverage that will best help fulfill those needs.
While it can seem like an overwhelming task to sort through finances in your divorce process, make sure that you are following tips to maintain your financial sanity. For first-time life insurance purchases or changes to current plans specifically, take time to review how your lifestyle, dependents, spending habits, incomes, and assets will change as a result of the divorce. Just as your life will change, your life insurance conditions will shift as well.
With this said, consider your own circumstances and which type of policy can best provide for the financial security for yourself and your ex-partner, while helping you meet any legal requirements created in the result of your divorce proceedings. The two most popular types of life insurance are ‘term life insurance’ and ‘whole life insurance.’ The difference between the two mostly involves the length and cost of the different plans.
Term life insurance is a type of policy that offers coverage for a set amount of years and is typically a more affordable option for individuals seeking protection. Your coverage will end when the policy expires, so consider how long you will need this financial safety blanket for your loved ones. Additionally, you might want to confirm, how long the court has dictated you to be obligated to provide a plan. Whole life insurance, on the other hand, covers individuals until the time of their death and builds up cash value as the years pass. Whole life is more expensive in terms of cost but offers more investment opportunities.
Adjusting Your Policy
Most married couples opt for some sort of life insurance, whether it is provided by one of the individual’s employers or an additional plan has been purchased. The chances are that if you were previously married, that your ex-partner was listed as the beneficiary to the death benefit payout. But if this isn’t the case, and the policyholder must now provide life insurance conjointly with alimony as a result of court, it would be necessary that the ex-spouse is listed as the beneficiary. Keep in mind that only the policyholder can make changes to the policy, therefore having an open conversation about the current status of the policy and where the money would go is imperative if individuals are obligated to pursue this form of spousal support.
Spousal support can also aid in helping your ex-spouse support any children that are in the picture. While it is understandable in some circumstances that the policyholder would want the death benefit payout to go to their children, as opposed to their ex-partner, particularly if the divorce was unfriendly, make sure you are aware of the age stipulations on beneficiaries.
Depending on the state, a person must reach the “age of the majority” that can range anywhere from 18-21 years old. Therefore if you are considering readjusting your beneficiary after a divorce, understand that if you pass away while your child is under this age, a legal guardian would need to be declared by a court. This legal process has the potential to prolong your child’s access to the funds drastically. Therefore, having your ex-spouse listed as the beneficiary can actually allow your children faster access to the benefits following an unexpected death.
Understand Your Legal Obligations
As mentioned previously, there can be some instances in which a court has ruled it necessary to provide life insurance coverage after the divorce, known as “court-ordered life insurance.” Often, there will be a requirement to show proof of plan, in which case your broker or insurance company will provide you with the correct documentation.
All the major decisions that follow divorce can seem meticulous. Luckily, there are several online resources that can help determine how much coverage is necessary to fulfill your requirements and protect your own financial well-being in the long-run. Speaking to your lawyers and insurance experts can help you create a timeline while securing your plan, and is especially important to consider given the timeframe in which you are required to provide the policy.
Purchasing and securing a policy early on in this process can offer peace of mind, as well as ensure that you have taken measures to protect your financial well-being and legal obligations. For more advice regarding spousal support in the form of life insurance, speak to advisors to help guide you through the process.
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