During the divorce process, it is important that get your life insurance plan in order. This is especially vital if you have children with your soon-to-be ex-spouse. By properly structuring your life insurance, the financial interests of all parties will be protected, especially those of your dependent children. Here is a primer on how life insurance generally works in a divorce.
The main goal of carrying a life insurance plan is to financially protect those who rely on your income in case you pass on. For most married individuals, their partner is the primary beneficiary of their life policy. By listing your spouse as the primary beneficiary, you ensure that their living expenses, such as childcare costs, along with the cost of food, rent, or mortgage, will be taken care of without your income. Having a life policy is especially important if you’re the primary wage earner.
If you decide to divorce, especially if no young children are involved, you likely won’t want your ex-partner to gain from your death. Most life policies are revocable, while certain others are irrevocable. The former allows policyholders to change the beneficiaries, whereas the latter does not allow this chance. If you want to change the beneficiary after divorce, you should contact your insurance agent to find out if your policy is revocable and change the beneficiary.
Account for Cash Value
Some life policies, such as universal and life policies, allow policyholders to accumulate cash value over time. Cash value is part of the assets that you share as a couple. Therefore, in case you’re in a divorce where all assets are to be divided equally, you should include cash value in those assets. This means your life insurance policy’s cash value will be divided evenly between the two of you.
Safeguard Child Support and Alimony for the Primary Custodian of the Child
Protecting child support or alimony is particularly important for the spouse, who becomes the primary custodian of the kids after divorce. The noncustodial parent’s child support is meant to pay for child care costs, such as food and clothing. Unfortunately, if the noncustodial parent passes on, this income will be lost, and the custodial parent may be left in dire straits. Therefore, if you’re a custodial parent, it’s prudent to have a life policy on the noncustodial ex-spouse with a benefit that can replace the alimony or child support, at least up to when the last child is an adult.
Divorce sometimes leads to people being single parents. If you are the primary caretaker of your kids because you can’t rely on your ex-spouse financially, you should consider having your own life insurance plan in place. Your children rely on your financial support. If you pass on, your kids won’t have a way of paying for their living expenses, like food and clothes. To determine your life policy’s minimum payout, you should calculate the number of years there are until the youngest kid is 18 (to be safe, 21) and multiply that number by your yearly income.