How Does Divorce Affect Life Insurance

Article summary

This article explains what to review before, during and after a divorce so life insurance policy decisions align with legal paperwork and family financial needs.

• Life insurance as part of a divorce checklist
• Policy inventory details
• Policy owner actions and limitations
• Support obligations tied to child or spousal support

How does divorce affect life insurance?

Divorce can change who depends on your income and who should control or receive life insurance benefits. Use this checklist to review existing coverage.

When a couple decides to end their marriage, separating spouses usually face a tough time. Emotions can run high, and important decisions need to be made regarding things like property division, child arrangements and spousal support. Some financial considerations will be more important than others. Life insurance may not be top of mind, but this article explains how life insurance is handled during a divorce and it explores some important steps to take with your policies during and after the split.

Should life insurance be part of a divorce checklist?

Lawyers will draft something called a marital balance sheet that lists the value of all the property, money and other assets you and your spouse share as well as any debts or obligations. Since permanent life insurance (such as whole or universal life) builds cash value, those policies may be treated as a marital asset. There are also situations in which a court might order an individual to purchase a new life insurance policy as part of a divorce settlement.

What is a policy inventory and when should it happen?

Before your divorce, you’ll need to gather information about all the insurance policies you and your spouse have in place. Take some time during your separation to review the policies and preserve statements. Look for the following types of coverage:

• Individual term and permanent policies
• Employer-provided life insurance
• Accidental-death coverage
• Policies owned by another person, trust or business

What life insurance policy details should you review during a divorce?

When you inventory a policy, document as much information as you can, including:

• Name of insured—the specific person whose life is being protected by the policy.
• Policy owner—the person who buys and controls the insurance contract.
• Beneficiaries—the individual(s) who have been named to collect the benefit when the insured passes away.
• Payer—the person who makes the premium payments on the policy.
• Face amount—the amount of money the insurer will pay out if the insured dies.
• Cash value—the amount of savings or investment a permanent life insurance policy has built over time.
• Expiration date—the date at which coverage ends in a term life insurance policy.

What can a policy owner do with a life insurance policy?

The owner of a life insurance policy has decision-making power over the contract (unless there are court orders to keep the policy as part of the divorce settlement). The policy owner can do any of the following:

• Change beneficiaries
• Transfer policy ownership
• Adjust coverage amounts
• Borrow against the policy
• Surrender the policy for cash value
• Let the policy lapse

Can you change a life insurance beneficiary after a divorce?

Although divorce does not automatically change who the beneficiary of your policy is, you (as the policy owner) may still want to review the policy and any court orders to see if you can change who will receive the payout. For example, if one spouse is the policy owner, they can usually remove the ex as a beneficiary unless the divorce settlement states otherwise.

Can life insurance be required for child support or spousal support?

When someone is liable for ongoing spousal or child support, it’s not uncommon for the divorce settlement to require one or both spouses maintain life insurance as a guarantee of ongoing support (such as after the paying parent or ex-spouse passes away). In addition to specifying the duration of the obligation, the court may also have requirements regarding who owns the policy, how continuing coverage is verified, and what happens if premiums lapse.

What happens to a joint life insurance policy after a divorce?

A joint life insurance policy is a single policy that covers two individuals (most often married couples or business partners) and pays a single death benefit. If you and your spouse are divorcing, you’ll need to check with your insurer to see if your policy includes a separation benefit that will allow you to split the coverage into two separate policies. Without a separation benefit, you may choose to cancel the policy or else one of you—you or your ex-partner—can take sole possession of it.

When should you talk to a life insurance agent during divorce?

Divorce changes the makeup of the family, but it doesn’t change the need for coverage; in some cases, divorce agreements may require additional coverage to support child support or alimony. Just be sure the decisions you make reflect your own wishes as well as those of the divorce agreement.

Whether you have existing life insurance policies that need updating due to a divorce or you’re required to take out coverage as part of divorce proceedings, you should avoid making changes without legal guidance. And when it comes to finding the life insurance coverage that suits your specific situation, it’s advisable to work with a qualified life insurance agent.