Securing Your Family's Future: Life Insurance Basics

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How Does Divorce Affect Life Insurance Policies?

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When two people are going through a divorce, it's often easy for them to overlook practical issues such as life insurance amid all of the emotional turmoil. However, not being aware of how your divorce affects your life insurance could have negative consequences on not only your own financial future, but also the financial future of your children and spouse. 

Who's covered for what?

Resolving any life insurance issues that come up as you go through a divorce requires you and your spouse to sit down and work out who has the rights to what. Your life insurance policy or your spouse's life insurance policy could be extremely valuable, and any policy is going to be considered an asset in your marriage by the divorce court.

A divorcing spouse who has his or her own life insurance policy can't simply assume that their spouse will have no rights over that policy. In fact, it's possible for a divorce court to rule that a policy must be surrendered by the policyholder to the other spouse in the property settlement. 

Obligatory life insurance coverage

Divorce might even cause some life insurance changes for those who don't even have life insurance. It is not uncommon for divorce courts to rule that a spouse must take out a life insurance policy if he or she will be required to pay child support and/or alimony well into the future. 

If your spouse is financially dependent on you, you may need to start shopping for life insurance. If your spouse is not dependent on you but will be supporting your children after the divorce, you may have to take out a policy or contribute to a policy that provides life insurance for your spouse. 

Reconsidering beneficiaries

Laws dictating how divorce impacts life insurance do vary somewhat by state, but many states have laws indicating that a divorce invalidates a former spouse's designation as beneficiary on a life insurance policy. 

Regardless of your state laws, you should look into any beneficiary designations on your policy and consider how your divorce may have changed who you want your death benefit to go to. Contacting your life insurance provider and talking things over with a company representative is definitely a good idea.

Unfortunately, divorce can severely complicate life insurance policy details. Divorcing policyholders need to be aware of the issues and bring them up with their attorneys to make sure that their life insurance benefits will go where they're supposed to when the times comes.