Divorce & Life Insurance Policy

Protecting Child Support

• If your divorce decree requires you to make child support payments, you may also be required to obtain and maintain a life insurance policy that will replace the amount of money you would have otherwise paid to help care for your children. Term insurance is typically used in these situations, and the duration of the term must be equal to or greater than the number of years until your youngest child reaches age 18. The mandatory face amount of the life insurance is usually calculated by multiplying the sum total annual child support payments by the number of years remaining until payments cease.
  
  

Protecting Alimony

• Life insurance is usually part of a divorce decree that includes alimony payments to your ex-spouse. Similar to protecting your child support payments, a life insurance policy may be required to ensure that your former spouse will continue to maintain her standard of living if you die. Term insurance is usually used in these situations, and the method of calculating the death benefit is identical to calculating how much is necessary to replace child support.
  
  

Ownership of the Policy

• A common problem with obligating divorced spouses to maintain life insurance policies on each other, especially in extremely unpleasant and vindictive divorces, is the ability of the ex-spouse to make unannounced changes to the policy after the divorce has been finalized. To reduce the potential problems in these situations, many divorce decrees stipulate that each spouse will be the owner and payor of the policy on the other. This alleviates any potential concerns over policy changes or unauthorized adjustments to coverage levels.
  
  

Beneficiary Changes

• Most divorce decrees that require each spouse to get life insurance also prohibit beneficiary changes without court approval. When children and child support payments are involved, some judges will require the children to be listed as primary beneficiaries. However, if you die and your primary beneficiaries are your minor children, a complicated probate and estate-planning situation may be created that could delay the payment of benefits to your children. This concern is usually resolved by creating a trust for the benefit of your children and listing it as the primary beneficiary.
  
  

Termination for Non-Payment

• In situations in which life insurance is required as part of the divorce settlement, but the spouses own their own policy, a common problem arises when the policy is terminated for non-payment. If your policy is canceled because you failed to pay premiums, and you are unable to reinstate the coverage, you are in violation of a court order. This can be further complicated if your health status has changed since you initially purchased the policy and you are now required to pay significantly more for the same required coverage level, or if you are no longer insurable. If you die after your policy has been canceled, your ex-spouse may be entitled to a portion of your remaining estate equal to the death benefit you were required to maintain.