Divorce is devastating, plain and simple. It is, quite literally, the ripping apart of what was once one life together.
On top of the personal and emotional difficulties that divorce entails, there is a swarm of practical details to figure out that can easily monopolize all the time, energy, and effort of all parties involved: how to separate your assets; custody arrangements; finding a new place to live; helping children to adjust as best as they can; readapting to the “new normal” of life as a single person; and more.
In all the upheaval, it’s easy to find important details like life insurance falling by the wayside.
While you should never plan for divorce, planning well ensures you’re prepared no matter what you face—including divorce.
In this article, we’ll try to answer four of the most basic questions when it comes to divorce and life insurance.
1. What Kind of Life Insurance Should I Purchase: Term or Whole?
First things first: you need life insurance, especially if you’re married, and especially if you have children.
As Dave Ramsey so accurately and directly explains it: “[Life insurance’s] only job is to replace your income when you die.” In other words, life insurance is financial protection for those who depend on you for their livelihood. It’s not an investment scheme or anything else.
For this reason, most experts—including Dave—recommend term life insurance, because term life insurance is just life insurance for a set number of years (i.e., for a “term” or period of time) and nothing else. Since term policies generally have lower premiums, it’s usually going to make the most sense for most people to go with term life insurance.
Since one of the main factors to consider is the age of your children, a term period of 10-20 years is typically going to be sufficient.
While you certainly shouldn’t plan for divorce, you should never wait until a divorce before purchasing life insurance. Get the coverage you need today so that you, your spouse, and your children can rest easy no matter what tomorrow may bring. Choosing the right plan can be daunting, but we can help! Contact us today and let us help you find the right coverage for your family’s needs.
2. How Much Life Insurance Do I Need?
As we said above, the purpose of life insurance is to help protect dependents in the unfortunate event of the person upon whom they depend for their livelihood. Therefore, how much the life insurance policy should cover depends on the needs of you and your children.
Here are some considerations as you decide:
- Childcare – According to the USDA, raising a child can cost a total of approximately $233,000. Obviously that will change from family to family, so as you figure out the amount for the policy, you’ll need to calculate the amount needed for child support and potential medical expenses for your kids.
- Income Replacement – In situations where an ex-spouse receives alimony, you should find a policy that will cover that income.
- End-of-Life Expenses – According to the NFDA, the average funeral costs up to $8,000. If you will be responsible for funeral costs in the event of your ex-spouse’s passing, be sure that you have the funds appropriated for in your policy.
3. In a Divorce, Which Spouse Owns the Policy?
When a divorce occurs, the owner of the policy, the one making the payments, and the beneficiary do not have to be the same person. However, determining who owns the life insurance policy is probably the most important decision, because the policy owner has control over rates, beneficiary, and insurability. So, for example, if you are the beneficiary but not the owner, adjustments can be made to the policy with or without your consent or knowledge.
Who pays the premiums can be a stipulation provided for in the divorce settlement, but some legal experts say that the beneficiary should be the policy owner regardless of whether they’re the one making the payments. That way, they have full control of the policy—and thus, their future, at least in principle—and will be notified even if the ex stops making payments.
However you handle the other details, make sure to work closely with your soon-to-be ex and your divorce attorney to come to a sensible decision about who should be the life insurance policy owner. Many lives hang in the balance and could be permanently impacted in a split second.
4. In a Divorce, Which Spouse Should Be the Beneficiary?
When the beneficiary is not the policy owner, it’s best to designate an adult as the main beneficiary, whether that’s your ex-spouse or a trustee. If you name your child as the beneficiary and you die before they turn 18, the court that handles your estate will assign a trustee or custodian to handle the money until the child is 18. It’s typical for the ex-spouse to be appointed so he or she can spend the money according to the needs of any children.
Another thing to consider is that, in some states, probate laws prohibit an ex-spouse from receiving the proceeds from a life insurance policy unless they are redesignated as the main beneficiary. So if you are going through a divorce and are choosing to keep your ex as the beneficiary, make sure to check the laws of your state to determine whether you need to redesignate him or her in your policy.
Divorce Is Hard, But We’re Here to Help.
Divorces are incredibly emotional and stressful, and worrying about the security of dependents shouldn’t contribute to the difficulty of the situation. Wherever you’re at in life, having the proper life insurance coverage can help you and your loved ones be prepared no matter what lies ahead.
Contact us today and let us help you get the coverage that’s right for you. We’re always available and we’re delighted to help.