A divorce is something that generates a lot of stress. After spending so much time trying to bond with your spouse and family, you need to start separating everything from household items to finances. One thing you may not have thought about is your life insurance policy or policies. What needs to change, and how do you go on from here? Here are some options you might want to consider when reviewing your post-divorce life insurance policy.
1. Courts could order you to have a life insurance policy
Sometimes the courts may require that at least one of you (you or your spouse) have a life insurance policy. They want to ensure that there is a supplemental fund to support the child or children in case something happens to one of the parents. If the spouse stops paying for life insurance, a court order can be filed to force compliance. If the ex-spouse tries to change policies or beneficiaries, this will have to be done with prior approval.1 If you have any questions regarding the life insurance policies ordered by the court, meet with your licensed life insurance agent and with his lawyer. You should always follow the instructions and requirements dictated by the court.
2. Reconsider your beneficiaries
Many (if not most) married people choose their spouse as the beneficiary. After a divorce, you might consider changing your beneficiary. In many states, a divorce could prohibit an insurance company from paying life insurance benefits to a former spouse, unless required under your divorce decree. In order to change your beneficiaries, all you have to do is fill out a form and return it to your life insurance company.1 The challenge comes when deciding who the new beneficiary will be. If you have minor children, you should think very carefully about naming them as your beneficiaries because an insurance company usually cannot release funds to a minor. For guidance on choosing the best candidate to trust with this responsibility, talk to your licensed insurance agent or attorney.
3. Record your life insurance policy(ies) as an asset to be divided
Universal life insurance policies and permanent life insurance policies may have a cash value. You’ll want to make sure you don’t lose any of your cash value or net worth. Listing it as an asset to be divided will help you come to an agreement on how to divide the policy.
Some policies may give the cash value to one spouse, keeping the policy and coverage in the other spouse’s name. It’s important to know that doing this will take away the cash value of the death benefit.2 Again, a licensed life insurance agent can help you better understand your post-divorce options.
Coverage and types of life insurance
The most basic coverage of life insurance is death, however, it also serves to cover other types of risks such as temporary or permanent disability, partial or total disability and death due to special causes (accident or serious illness).
In the case of death coverage, which is the best known to all, insurance would mainly cover burial expenses and death capital, which is nothing more than the amount of money that the beneficiaries will receive in the event that the insured die.
In general, insurance companies offer different types of life insurance, but in general terms, we can group them into three broad categories:
Family life insurance
They protect your family against risks that can generate economic damage. For example, in the event of the death of a family member, they cover burial expenses, they also protect children against being orphaned by accident and against other circumstances such as absolute permanent disability, disability due to accident, death due to a traffic accident, serious illness, among other.
Professional life insurance
It is ideal for freelancers. If your family and your business depend 100% on you, this is the appropriate insurance to give financial peace of mind to your loved ones in the event of an unexpected event.
Payment protection insurance
If you have mortgages, this is your indicated policy. It consists of protecting your relatives against possible bank debt
Who’s who in life insurance
Before knowing what types of life insurance exist, it is advisable to understand who is included in a policy of this type.
Insurer
It is the entity or insurance company that is responsible for paying financial compensation to the beneficiaries of the policy.
Taker
It is the person who contracts the insurance. It does not have to coincide with the insured, although in most cases the person usually takes out life insurance for himself. In any case, it is possible to contract a life policy for our partner or children.
Insured
It is the person on whom the risk (death or disability) falls. If the policyholder takes out the policy for himself, he would also be the insured.
Beneficiary
It is the person who will receive financial compensation from the insurance company in the event that the insured suffers any damage stipulated in the coverage of the policy. In the case of death insurance, it is logical that the beneficiary cannot coincide with the insured, but if we are talking about a disability situation, then the insured and the beneficiary could be the same person.
