Life insurance is a policy where the provider is obligated to pay a sum of money to the listed beneficiaries after the policyholder’s death. The policyholder makes periodic payments known as premiums to the insurance company continuously until his death. Life insurance can offer whole or term coverage. Whole-life insurance covers the entire life of the policyholder, as long as they continue to pay the premium. On the other hand, term life only lasts for a specific period, after which it will be terminated regardless of whether the policyholder dies or not.
What Happens to Your Life Insurance after Divorce
Spouses take out this type of insurance to protect the financial interests of both parties and their dependent children. In the event of a divorce, there may be some changes to the policy. For example, the policyholder may decide to make changes to the beneficiaries and the cash value in a whole-life policy.
The policy may also be modified to protect child support and alimony income. Regardless of the changes, the most important thing is to ensure that the children involved are financially protected at all times.
Most jurisdictional laws state that if a policyholder takes out life insurance and lists his spouse as a beneficiary, in case of a divorce, the spouse will be treated as though they predeceased the policyholder. In simple words, it means that if the husband is the policyholder and the wife the beneficiary, the insurance company can ignore the wife and only pay the husband. However, this only occurs if neither of them mentions life insurance in their divorce settlement. If it is included in the settlement, the wife will be paid as long as she is legally the policy’s beneficiary, regardless of her relationship to the deceased.
How to Make the Most of Your Life Insurance after Divorce
The best way to ensure that both parties benefit from this coverage regardless of their relationship status is to list the life insurance policy, including its cash value, among the marital assets to be divided. This lets both parties leave with equal halves of the cash value from the policy.
Some other considerations that you need to keep in mind
- If the divorce is a bitter or angry one, the policyholder may not want the ex-spouse to benefit from his death. The solution to this situation might be to revoke the spouse’s beneficiary status. This can only be done if the terms of the insurance agreement allow that. Where you have appointed irrevocable beneficiaries, you cannot keep the spouse from benefiting from your death.
- If the couple didn’t bear any children, the policyholder might not see any reason to keep the spouse on the beneficiary list. If you have decided to revoke your wife’s or husband’s beneficiary status, you must inform your provider. They will then tell you if it is possible to make such changes to your policy.
A divorce decree can beat a beneficiary designation in a life insurance policy if there are no coverage laws against the decree.
However, the opposite will be true if there are federal laws governing life insurance policies that surpass conflicting state law documents, like divorce decrees.
At Young Insurance, we offer various types of life insurance policies to suit our clients’ specific needs. Visit our site to get a quote now!