Life Insurance and Divorce: What You Need to Know
Life insurance policies give your beneficiaries a lump sum after you die. That’s a simple premise, but – as it does to other aspects of life – divorce can make life insurance more complicated.
Here are some things to keep in mind about how divorce will impact you as a life insurance policyholder or beneficiary. There's also guidance about what to do to help make sure your loved ones will get the financial support they need after a divorce if you unexpectedly pass away.
How divorce can affect your life insurance
Divorce proceedings affect life insurance policies in a few different ways, depending on:
- Whether you have children
- Your state’s laws around marital property
- The terms of your divorce decree
- Your plans to remarry or remain single
Depending on the laws in your state, divorce doesn’t automatically remove your ex-spouse as your life insurance beneficiary. If you don’t review and update your policy, the result could be that the wrong person ends up receiving the payout – an outcome that may not match your wishes.
You may also face different requirements if you have term life insurance versus whole life insurance, or if you hold policies through your employer.
Life insurance steps after a divorce
Your financial life and priorities will look different after a divorce. It’s a good idea to review your life insurance policy and make the appropriate changes to your beneficiaries, coverage amount and other factors. Here are some specific actions.
Review and update existing policies
Unless your divorce decree says otherwise, review your beneficiary designation immediately. If your ex-spouse remains listed as your beneficiary – and your state does not automatically revoke that status after divorce – they could still receive the death benefit even if you intended for your children, current spouse or another loved one to get it.
It’s important to note that if your divorce decree includes an “irrevocable beneficiary” clause, your ex-spouse may have the legal right to remain the beneficiary, and you won’t be able to change it without their consent.
Decide whether you need a new policy
A divorce can change your financial priorities, especially if you have children. You may need a new policy if:
- You’re required by the court to keep your former spouse as a beneficiary but want to provide for others as well
- You remarry or plan to have more children
- You surrendered a permanent policy for its cash value during the divorce
- You can no longer afford your previous coverage and need a more affordable term policy
For single parents, a new policy can help ensure your children’s financial well-being for as long as they depend on your income.
Get professional guidance
Even if you compare quotes online, speak with an insurance representative to find coverage that fits your post-divorce situation. A financial planner can help you integrate your life insurance with your retirement and estate plans.
Because life insurance bypasses probate, it can deliver funds to your beneficiaries faster – which is especially valuable if your estate is contested.
Life insurance and financial protection for children
A key issue that comes up in divorce proceedings for families with children is making sure the children are provided for, regardless of custody arrangements. Life insurance can help in several ways to ensure your kids will be taken care of after you’re gone.
Protecting child support and alimony
Alimony supports an ex-spouse, while child support ensures children’s needs are met. Both end upon your death. A life insurance policy can replace this lost income so your children – and possibly your former spouse – remain financially supported.
Coverage for single parents
If you’re raising children on your own, life insurance is a vital safety net. It can also protect children from a previous relationship if you remarry, ensuring they still receive financial support.
Your divorce and your life insurance
Life insurance is an important part of financial and estate planning, and divorce can complicate how your coverage works. Depending on your settlement, you may need to change beneficiaries, maintain an existing policy or purchase new coverage.
Don’t assume state law or your divorce decree will automatically protect your intentions. Review your policies promptly after divorce and consult your attorney before making any changes. The right steps now can prevent costly mistakes later – and ensure your loved ones receive the support you intended.
This story was created in partnership with Money.com.
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