During a divorce, life insurance may be one of the many financial considerations you may need to assess while dissolving your marriage and dividing your marital assets.
Permanent and term life insurance policies are treated differently in divorce proceedings. For both types of policies, you should review and possibly update your beneficiaries, and you may need to buy a new policy after the settlement is finalized — by court order or otherwise.
Each divorce and every divorced person’s life insurance needs will be different. Here’s what you need to know to manage the process.
Life insurance considerations during a divorce
Review your own life insurance needs
If you’re going through a divorce, it’s a good idea to consider if you need to make changes to your existing life insurance, or if it makes sense for you to get a new policy. Experts recommend to review your insurance needs any time you go through a major personal or financial change, such as getting divorced, having a child, or buying a house.
You’ll have to initiate any desired changes. If you want to update a beneficiary or alter the amount of insurance coverage you have, you’ll have to reach out to the insurer. Getting divorced won’t automatically change anything about your life insurance policy.
Determine if your policy is considered a marital asset
If you have a permanent life insurance policy with a cash value, the cash value is considered an asset and could be divided between spouses during a divorce.
If you have a term life insurance policy, you won’t have to worry about splitting the policy proceeds during the divorce. Term life policies have no cash value and simply pay out a tax-free death benefit upon your passing. They have no financial value while you’re alive.
Account for cash value in a permanent policy
When you get divorced, you’ll list all your shared assets to be divided between you and your spouse. If you have a life insurance policy with a cash value, the total accumulated cash value should be listed as a shared asset.
As you negotiate how to divide your assets, it may make sense to cash out the policy and divide the cash value between you and your spouse. This would require you to cancel your life insurance policy.
You could also negotiate keeping the policy. But depending on the terms of your divorce, you could be required to keep your spouse listed as the beneficiary.
Protect alimony
If you depend on your spouse’s income to live, you’ll likely receive alimony support following a divorce. To protect this income, consider getting a life insurance policy on your former spouse.
If you don’t already have a life insurance policy for them that lists you as the beneficiary, you can set this up. But even if you pay for the policy, you’ll need to get your spouse to consent to this coverage. In some cases, the court can order your spouse to get life insurance.
Protect child support for minor dependents
Similarly, if you receive child support payments following a divorce, you should consider getting life insurance on your former spouse to protect this income. This can ensure you’ll get the child support you’re depending on even if your ex-spouse dies. You’ll need your ex-spouse’s consent to set this up.
Life insurance beneficiaries following a divorce
Should you change your life insurance beneficiary after a divorce?
Most couples who buy life insurance name their spouse as a primary beneficiary so that when they die, their partner has funds to pay off shared debts and raise their children. After you get divorced, there are many reasons why you could want the death benefit to go to someone else.
The process for changing the beneficiary of your policy varies for each insurer. It’s usually done online, over the phone, or by mailing in a paper form. Only the policy owner can change a policy’s beneficiaries.
However, if your ex-spouse was named an irrevocable beneficiary of your policy, you’ll need their consent to remove them and may need them to approve any other changes to your policy.
Learn more about changing your life insurance beneficiary
Can you remove your ex-spouse as the beneficiary of your policy?
If you own a life insurance policy that insures you and names your ex-spouse as the beneficiary, you can update the beneficiary on your policy to remove them. Most people set up a trust instead, but you could also list a parent or sibling.
However, if you owe alimony or child support, a judge may order you to keep your ex as your beneficiary to ensure financial support continues when you’re gone.
Can you name your child as a beneficiary?
After your divorce, you may want to switch your beneficiary from your ex-spouse to your children. Though this may seem like the right way to secure their financial protection, it’s not recommended.
Anyone who hasn’t reached the age of the majority (18 in most states and 19 in Alabama and Nebraska) can’t legally accept the death benefit.
If you die and your beneficiary is under the age of the majority, courts will appoint a legal guardian to decide what to do with the funds, which can tie up the death benefit for years.
There are three ways to make sure that your children receive the death benefit in the manner (and time frame) that you would prefer:
Set up a trust: A trust is a legal entity that designates how your assets go to your heirs. A trust can designate specific assets, beneficiaries, and a trustee to manage the trust.
Arrange for a custodian to control the funds: This should be someone you trust to act in the best interest of your children. You’ll need to specify in the policy if this is someone other than the surviving parent.
Keep your ex-spouse as the beneficiary: If you and your ex-spouse are sharing custody and financial responsibility of your children, you might want to keep them as the beneficiary of your policy. This is the simplest solution in many cases. You can name your children as the beneficiaries when they reach the age of majority.
Learn more about irrevocable life insurance trusts
Can you stay on an ex-spouse’s life insurance policy?
Once an insurance policy is active, only the policyowner can make changes to it. If your ex-spouse owns a life insurance policy that insures you and pays out a death benefit to them in the event of your death, they can keep that policy even after your divorce.
While you can ask your ex-spouse to change the beneficiary, it’s entirely up to them to actually do this unless you receive ownership of the insurance policy through your divorce settlement.
When should you buy life insurance on your former spouse?
If you’ll rely on your ex-spouse for any form of financial support, it’s worth asking that they maintain a life insurance policy as part of your divorce agreement, naming you as a beneficiary.
There are three main reasons to ask for life insurance to be included in a divorce agreement:
You rely on your former spouse for financial support. Life insurance will help you protect alimony payments that you’ll receive. It will also help you protect pension or retirement funds that you’ll receive.
You have children together. Life insurance will help you replace any child support payments that you’ll receive.
They consent. If you want to manage the policy, you can take a policy out on your former spouse, as long as they consent to being insured. Doing so means they’ll be covered, but you’ll get to manage the policy and you won’t have to worry about them making changes or missing payments.
Ultimately, a judge decides whether life insurance can be included in your divorce agreement. Talk to your lawyer about whether this is the right option for your financial needs and your divorce case.
What is court-ordered life insurance and how does it work?
Alongside alimony payments, child support, or any other financial support, a judge may decree life insurance as a part of the spousal support in your divorce settlement.
This is called court-ordered life insurance, and you usually have a deadline by which you need to secure a policy.
If the court orders you to buy life insurance as a part of your divorce proceedings, there are three things to keep in mind:
1. Get started with an application ASAP
The life insurance application process can take up to six weeks to complete, unless you’re able to qualify for an accelerated underwriting policy. It could take even longer if the life insurance company needs supplemental information or your initial application is rejected.
Ideally, you should begin the life insurance application process at least six months in advance to account for any hiccups. If you don’t have six months, get started as early as possible to make sure you have a policy in place by the court’s deadline.
2. Communicate about the policy from the start
The particulars of your court-ordered life insurance policy should be coordinated with your former spouse and respective lawyers, including:
How long the term should be
How much coverage to buy
Who will own the policy
Who will pay the premiums
There are two ways to set up the policy to ensure that your ex receives the benefit: Either they can be the owner of the policy and the beneficiary, or you can be the owner of the policy and name them as an irrevocable beneficiary.
3. Get proof of the policy for court
If you’re asked to provide proof of the policy for court, your broker or the life insurance company can give you a copy of your signed application. A receipt of payment should also work.
Again, divorce proceedings vary for each case. You’ll want to work with your lawyer while going through this process to make sure you are following the court’s guidelines.
How to buy life insurance after a divorce
After your divorce, you may need to purchase a life insurance policy for the first time. There are a couple of steps you can take to ensure that you buy the right life insurance policy and coverage.
Determine how much life insurance coverage you need
If you’re purchasing life insurance after a divorce, you want to make sure that you’re purchasing enough coverage to protect the loved ones you would leave behind when you die.
Policygenius advisors recommend purchasing a life insurance policy that is at least 10 to 15 times your income. Your coverage should account for all of your financial obligations, including:
Childcare: The cost of raising a child up to age 18 can end up being about $250,000. The death benefit can support your children’s daily needs or education expenses.
Dependents: If you’re responsible for an aging parent or family member, you should factor their continued care into your plans.
Debt: If you have any debt that will remain unpaid after you die, whether a mortgage or personal loan, you can get insurance to cover this so your loved ones will be able to keep their home and manage your estate effectively.
Income replacement: Whether you bring in an income or take care of services around the home, your economic contributions will need to be accounted for if you die.
End-of-life expenses: Funeral services can cost upward of $10,000. Leaving behind funds for your family means they won’t have to withdraw from their savings or go into debt to cover those costs.
Learn more about how much life insurance you need
Determine what type of life insurance policy you need
Aside from the amount of life insurance coverage you purchase, your individual circumstance dictates what type of life insurance policy you’ll buy.
Term life policies are the best option for most people, but individuals with specific circumstances, such as a child with special needs or a person with a high net worth, may need a permanent life insurance policy.
Here are the key differences between term life and permanent life insurance policies.
Features | Term life insurance | Permanent life insurance |
|---|---|---|
Duration | 10 to 40 years | Life |
Cost | $25 to $30/month | 5 to 15 times more than term |
Guaranteed death benefit? | Yes, within the term | Yes |
Guaranteed cash value? | No | Yes |
How cash value grows | N/A | Earns interest at a predetermined rate |
Premiums | Level | Level or changes based on cash value |
Methodology: Rates are calculated for 30-year-old male and female non-smokers in a Preferred health classification obtaining a 20-year $500,000 term life insurance policy. Life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 01/01/2024.
A Policygenius agent can help you find the right type and amount of coverage. Finalizing a divorce can be complex and lengthy, but life insurance should be a serious consideration in the process.
Knowing whether your policy is a marital asset, who the beneficiaries are, and whether owning a policy should be part of your agreement will ensure your loved ones have financial support when you’re gone.
