Divorce can get complicated, even if your split is amicable. On top of all the paperwork there is to deal with, the process of dividing up your life together can be tough.
With everything going on, it’s easy to forget about your life insurance policy. But life insurance can play a crucial role in divorce proceedings and protecting your family down the road.
Here’s what happens to life insurance policies in a divorce.
What does life insurance mean for divorcees?
For most married couples, life insurance policies help ensure that surviving family members are protected financially. If one spouse dies, the other receives a cash payout that can replace their partner’s income, pay day-to-day expenses, debts, or save for the future.
When it comes to life insurance after divorce, things often look different. During the proceedings, you will need to revisit your policy to decide whether to change or cash it out. If it’s your ex-spouse’s policy, or you both have individual plans, it’s still a good idea to take a second look and update the terms based on your new arrangement.
If you have kids, a life insurance policy is a good way to ensure that your children are taken care of, even if you are no longer the primary caregiver. Don’t have a policy already? Purchasing one could end up being part of your court-ordered divorce agreement.
Your divorce lawyer will likely ask you about any remaining life insurance policies early on in the process. If they don’t, make sure to start the conversation yourself to avoid any complications over your current situation or final divorce settlements.
Is life insurance considered a marital asset?
When you apply for divorce, part of the process includes identifying all of your financial assets so they can be divided equally. Most divorce courts consider “assets” to include anything you own that has value, which may mean:
- Cash, savings, or investments
- Real estate or other property like vehicles
- Home furnishings, such as artwork, furniture, and appliances
- Collectibles, from jewelry to antiques
Whether your policy is considered an asset or not will depend on the type of life insurance you and your ex-spouse have. Let’s consider the two main types of life insurance policies: term and permanent.
Term life insurance offers affordable coverage for a set period of time. A term life policy will pay out a fixed sum upon the death of the covered party as long as the policy is active. It also typically carries no monetary value.
Permanent life insurance offers lifelong coverage and usually includes an additional cash value component along with the tax-free death benefit. The cash value accrues over time, adding to the policy’s value, and may be considered a marital asset.
Regardless of the type of policy you have, there are various state laws that can come into play if the life insurance policy is not addressed during the divorce proceedings. Ensuring you and your attorney address these requirements will help ensure your beneficiaries are protected.
How long will my spouse stay on our insurance after we divorce?
Buying life insurance is not the same as writing a will. Since a life insurance policy is a legal contract, the terms you agreed on when you bought the policy won’t change with your circumstances. If you get divorced, you’ll need to follow the terms of your divorce proceedings and likely update your policy so your death benefit goes where it was intended to go.
If permitted, you may want to consider replacing your ex-spouse with your children as beneficiaries or creating a trust to manage the benefits after you pass.
In some cases, however, you might not have the option to remove your ex-spouse from the policy. Nearly half of all states automatically revoke an ex-spouse’s right to insurance payouts after a divorce, so your situation will likely depend on where you live.
Keep in mind that if you have to pay alimony or child support, a judge may require you to buy a policy and name your ex as the beneficiary. Even if they don’t, you may want to consider permanent or term life insurance after the divorce to support any kids in case you die.
When your relationship changes, so should your life insurance. Whether you have children to protect financially or you are simply dividing assets, it’s important to cover all the bases. Talk to your divorce attorney and insurance company about your policy to make sure your loved ones are taken care of.
Still have questions about life insurance and divorce?
Fidelity Life is here to answer your questions and walk with you every step of the way. Get in touch with us or start your online quote today.
At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.
