Marriage is a beautiful bond but sometimes things don’t go as planned. There could be several reasons for moving on different paths and mostly the decisions are made for a better future for both husband and wife. Buying life insurance during your marriage is surely a sensible thing, but many things need to be rectified when you have finally decided to move on the separate ways.
So, whether you are a male or a female living in the US, this article is intended to help you follow the right directions if you are looking for life insurance on your ex-husband or wife.
3 Important Things to Consider First
Although the matter of life insurance is neglected during the divorce process, yet it is an essential part of the entire procedure, especially when you and your former spouse have children.
So, when it comes to divorce and life insurance, then here are the things you must contemplate.
1. Reconsidering the Beneficiary
Assuming you in between the divorce process, it is time for you to reconsider the beneficiary, as your ex-spouse must be listed on when you had bought the life insurance plan as a married person. So make sure to remove your ex-spouse (if you think you cannot trust him or her) from the beneficiary and add your children to it.
2. Talk about Cash Value
In life insurance, the cash value of assets is equally divided among you and your ex-spouse. So it is better to discuss managing the entire process with your insurance agent and divorce attorney.
3. Securing Child Support Income
If you have children with your ex-spouse, then you will have to discuss the matter of child support income in case he or she passes away and you are financially weak to support your kids. Your ex-spouse will need to cooperate with you and with the insurance company by providing all the details to get alimony income for your children.
To get a life insurance policy on your former husband or wife, here are things you required to get:
- Insurable interest
- Divorce documents
Assent simply means approval. For changes in the life insurance policy during your divorce, you are required to take the consent from your ex-husband or wife to take the process further. In case, you are failed to provide written approval from your ex-spouse, your insurance company will not be able to modify your life insurance policy.
Also, it is illegal to make any amendments in the divorce life insurance policy without involving your ex-spouse. Therefore, you must bring the information in the knowledge of your former partner to keep things smooth and legal.
2. Insurable Interest
Insurable interest is a part of all kinds of insurances in which, if an object is destroyed or damaged, the insurance company bears the financial burden.
For instance, if any factory equipment is damaged due to fire, the insurance firm will pay for the damage as the entity was insured under fire insurance. Similarly, in life insurance, the object is ‘person’s life’, and this is why the insurance provider pays the amount to the beneficiaries when the insurance holder is expired.
Usually, the continuation of any existing life insurance policy during divorce is redeemed as a ‘divorce settlement’. The benefits and coverage, which were previously set, undergo several alterations once the divorce is filed. This can affect the ability of the divorcing partner to keep the life insurance policy in persistence.
The most important issue that is raised due to divorce is of insurable interest. While in the marriage contract, a spouse holds an insurable interest in the life of the marital partner, therefore, he or she can buy life insurance for the spouse.
The beneficiary is allowed to enjoy the benefits of life insurance of his or her spouse even if they are divorced after the issuance of the policy but on certain conditions. However, the policyholder must understand his or her life insurance terms to figure out whether it has any provisions or clause that prevents the beneficiaries from collecting the amount upon the end of the marriage.
So this means that if children are named as beneficiaries, then there won’t be any problem even if the marriage is terminated. But if the beneficiary is the ex-husband or wife, then the court may alter the rules and specify the names of the new beneficiaries.
This is why it is recommended in the above-mentioned section to change the beneficiaries yourself by discussing the matter with your divorce lawyer and insurance agent.
3. Divorce Documents
You are required to take care of all the paperwork, as you will need them for making the changes in the life insurance policy after your divorce. So here are the documents you must keep.
A ‘divorce decree’ is the main document in your divorce. It is proof that your marriage has come to an end which is signed by the judge.
A ‘divorce certificate’ is issued by the bureau of statistics or your state’s health department. It showcases the following things:
- Your divorce confirmation
- Your name along with the name of your former spouse
- Date and place of the divorce
Note: Do not confuse divorce decree with a divorce certificate, as both documents are different from each other.
Appraisals and Financial Documents
Don’t forget to save all the appraisals, as it confirms what assets will belong to you after the divorce. Basically, it is the division of property (land, bank accounts, etc) by the court.
Selecting the Beneficiaries
After the completion of your divorce process, you may think to change the beneficiary from ex-husband or wife to your kids to make sure they don’t find any financial difficulty in the event of your death.
Though this step may appear to be the best thing for your children to protect them financially, you just cannot rely on it every time.
The main reason is that life insurance policies do not pay death benefits to your children if they are underage. Therefore, they should be at least 18 years to receive the benefits.
So, in case you are dead and your children are below 18, then the court will designate a legal guardian, who will decide what measures to be taken for the funds. To prevent your children from waiting for years; here is what you can do:
- Appoint a custodian and specify his or her name in the policy. But make sure the person is someone you trust the most.
- You can take help from a ‘trust’ to make sure the benefits are designated to your children or legal heirs.
- Keep your ex-husband or wife as a primary beneficiary on the life insurance policy if both of you are sharing your children’s financial responsibility and custody.
Reasons to Buy Policy on Ex-Spouse
There are many reasons to buy a policy on your former spouse.
However, the most important ones are:
1) Fixed Premium Advantage
Fixed premium life insurance assures the premium that is required to be paid will remain unchanged regardless of duration. In other words, the insurance holder will have to pay the same amount of premiums in his or her entire life.
There can be times when paying for extra-services become too difficult. So when you opt for life insurance on divorce, it permits you to control your budget as you pay a fixed price.
Life insurance with fixed premiums is easy and straightforward. Also, it is more convenient and affordable in the long run. On the contrary, stepped premiums may look inexpensive at first, but they are increased over time.
2) Tax-Free Emergency Loans
Through the ex-spouse life insurance policy, you can borrow the amount in difficult times. It is a great way to get easy cash in hand. And when the invested premiums increase the total amount of death benefit, the emergency loan becomes tax-free.
However, it is important to keep in mind that this policy loan is not deducted from the death benefit, but you request to borrow against it while the insurance firm uses your policy as a security for the loan.
The best thing about buying the life insurance policy on ex-husband or wife is that it does not require a credit check like the banks do, as you borrow from your own insurance policy. Therefore zero explanation is needed, and the borrowed money can be used for any purpose.
Furthermore, the IRS does not recognize this amount as an income and this is another reason it remains free from any tax deduction.
The interest you have to pay on this loan is usually lower than the rates offered by banks. Also, there is no compulsory monthly payment, which means you are given leverage to pay back the loan. No pressure!
3) Ease Access to Child Support and Education
In the majority of divorces, it is the responsibility of the spouse to provide all the basic necessities to the child or children, such as paying for education and other living expenses. But now, as people are well-aware, many divorced couples prefer going for life insurance to prevent them from bearing the expenses.
So, taking advantage of life insurance to cover the obligation of supporting one’s children after divorce is a great way to save most of the cost that is required to raise a child.
With the help of divorce life insurance, your children are never in pain due to the lack of financial support. Yes! All the educational expenses and other important expenditures related to your children are taken care of if you buy insurance on an ex-spouse. These facilities can be enjoyed to a certain age of your child, depending on the state or region you, your ex-spouse, and children are living in.
Despite different ways, ex-spouses are still connected because of children. The continuation of life insurance after getting a divorce is a necessary thing that should be done for your child’s bright future. Such insurance policies have a lot of flexibilities and they also come with numerous advantages. It is the greatest thing parents can do for their children after legally ending their marriage.