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Life Insurance and Divorce

Written by Aaron Pinkston, Fri, Nov 13 2009

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The internet is an interesting thing. Blogger Kelly Whalen at The Centsible Life was looking for some advice for divorced women she’d met yesterday. At the same time, I was looking for new ideas to write about. One serendipitous moment later, here you are reading this. Neat.

This is a good guide to help you think about life insurance after divorce. If you need help with your specific situation, I recommend talking with a qualified advisor like a fee-only financial planner. They don’t make money by selling stuff, so their advice is more objective.

Do you need life insurance after divorce?

Think back to when you were married. Did you need life insurance then? Did you need to insure your spouse’s income? Are there kids involved? How would you take care of them if either of you passes away?

If you needed life insurance to protect your family when you were married, there are two main reasons to consider continuing that coverage after divorce. If you didn’t need life insurance then, chances are you don’t need life insurance after your divorce.

You might need life insurance after divorce if:

  1. Part of the divorce involves child support payments. Be realistic. Kids take money. If your former spouse dies, where would the money come from to help raise the kids? Who is paying for college?
  2. Part of the divorce involves alimony payments. If you rely on that income, you need to insure it. It is equally important to protect yourself financially as it was when you were together.

Who should own the life policy after a divorce?

There are two concerns to think about:

  1. What if the insured (that’s your former spouse) decides to change the beneficiary without your knowledge or permission? An annual review just does not cut it.
  2. What if the person who controls the policy decides to discontinue it – maybe by stopping payments or writing a simple letter?

From the perspective of a life insurance insider, there are two ways to ensure the coverage stays in place the way it should.

An irrevocable beneficiary would make sure whoever is named to receive the life insurance money originally cannot be changed without the other’s permission. But if payments stopped for some reason, this would only help out so much.

A more secure method is to own the policy on your former spouse. Only the owner is responsible for payments, so once the policy is in place, you will know if it continues. This might bring up different concerns from your ex, which may be satisfied if you name an irrevocable beneficiary on the policy. Now you both have some control.

Raising kids with life insurance money

Who should be the beneficiary anyway? If there are children involved, this question can get tricky. Would you trust your ex with a wad of cash to raise your kids? Would he or she trust you? If not, think about creating a trust for your children and name the trust as the beneficiary.

You lawyer can tell you more about why this is a safer option. If you think people don’t fight over children for money, think about Anna Nicole Smith. Creating a trust for your kids helps make sure the money is used for their benefit, regardless of who has custody.

Keep in mind there is one way to get custom life insurance quotes from multiple agents without any hassle. You might need a new policy because of a trust or just want to compare.

Start your quote today. Choosing is easy when choices are clear.