Life insurance is a difficult enough topic for most people to wrap their heads around, but when life insurance is included as a decree in a divorce, things can get much more complicated.
This article will detail everything we understand about divorce and life insurance. However, every state has different laws – so some information may not apply to you.
In most divorces, especially among couples which have children together, it is very common a stipulation is made which requires the main parent to own a life policy. It just makes sure everyone is taken care of in the event of a death.
The length of the policy is usually dependent on what the policy was originally meant for. If it is meant simply as a means to cover child support costs, the plan may terminate once all the child turns 18.
A life insurance plan can also be extended for much longer, depending on the particular needs of each couple. If alimony payments are being made, you will want to make sure your policy covers the amount owed.
The most important part about taking out life insurance for divorce decrees, is which parent will be the life insurance policy owner.
The owner has full control over the policy and is able to name beneficiaries as they see fit. A common way to make sure are stipulations are upheld is having the supporting parent be the policy owner.
It is also possible to include provisions in the divorce agreement if life insurance is no longer carried, the would-be dependents could receive part of the estate which would’ve equaled the face value of the policy.
Buying Life Insurance FOR a Divorce Decree
If you’re in this situation, it can be frustrating and overwhelming process. You’re trying to handle the divorce process, and on top of that, you have to find a life insurance policy which fits your budget. This can be an emotional time depending on how the marriage has ended, but luckily, it can be very easy to get affordable life insurance coverage.
Here are 3 important tips if you’re looking for life insurance required by your divorce decree:
- Purchase a term life insurance policy. Budgets are typically tight after a divorce and term life insurance is the least expensive option and will ensure the premiums stay fixed. Just make sure the term length will cover the specified amount of time of the child support (if you’re a parent) or alimony obligation. Not only can you buy a term insurance plan that will meet the length required for alimony, but these plans are much cheaper.
- Transfer the owner of the policy to the person receiving the alimony or child support. We recommend the person receiving the alimony or child support be the owner of the policy (even though the ex-spouse is the one being insured and paying for it) so they don’t have to worry about a beneficiary being changed or the policy lapsing. They would be notified as the owner of the policy if there’s a lapse; and beneficiary changes can only be processed from the owner. This won’t happen unless it’s negotiated into the divorce decree.
- Your employer provided life insurance won’t suffice, you need to buy a personal plan. Depending on your state’s laws, a divorce will automatically remove your ex-spouse as beneficiary. If you wish to use your employer provided life insurance, it must be stated in the divorce decree (good luck with that!). This is rarely allowed because leaving your job cancels your employer life insurance and leaves those who depend on the alimony and child support at risk. Employer life insurance is a great benefit for additional life insurance coverage, but it will almost never satisfy the requirements for a divorce. Your employer life insurance plan will have little impact on how much coverage you will need to buy.
All of the matters regarding life insurance for divorce are highly dependent on the situation at hand, which is why we are including a Q & A section which will hopefully address many of the questions people might have.
Can I require my spouse to carry a life insurance policy for my child as part of the divorce?
Yes (In most states). As a part of the child support section of your divorce case, you can order your spouse to get a policy that names your child the beneficiary. It can also be common to buy life insurance with you named as the beneficiary to cover alimony.
What happens if my spouse changed the beneficiary before the divorce was final. Are they allowed to do this?
If they are the owner of the policy, and there is no court order stipulating he must include you or anyone else as a beneficiary, there is nothing stopping them from changing the beneficiary.
If you are still going through the divorce process, make sure you stipulate you need to be included as the beneficiary as a part of the agreement. If this is a court order, your ex-spouse will have no choice but to comply or go to jail.
If the divorce has already gone through without you stipulating the need to keep you on as a beneficiary, you can try to amend the divorce decree with life insurance as a stipulation.
Is it considered fraud to change the beneficiary on a life insurance policy as a reaction to a divorce filing?
If there is no stipulation stating you or your children need to be named as a beneficiary, then there is no fraud taking place if they decide to take you or your children off the policy as beneficiaries.
The good news, is if the divorce papers have just been served, there is still plenty of time to add a stipulation to the divorce decree stating you or your child must be named as a beneficiary.
Can a provision be added in the divorce for a life policy?
If your current court order does not include this, it would require you going back into court to ask for the modification. Be prepared to prove why this stipulation is necessary now, when you let the divorce go through without it previously.
Can I be required to pay the premiums on my ex-spouse’s life insurance policy?
Some ex-spouses will demand the other party pay for the life insurance premiums, as they feel they will be the ones benefitting from their death. This is not how the system works though, so if someone is trying to make you pay their premiums, don’t stand for it!
Normally the person paying the alimony will always have to pay the premiums.
What can I do if my ex-spouse is not complying with the court order regarding a life insurance policy?
If your ex-spouse is not complying with the court order regarding life insurance, they are breaking the law. You can take legal action against your ex-spouse for this, and you should too. Contact an attorney to find out how to get what is yours.
What if my ex-spouse drops their policy and then becomes terminally ill and is uninsurable?
If you were unable to take them to court before they become terminally ill, not all hope is lost. You will still need to go to court, but it is most likely you will be paid in assets and not in the form of life insurance which your ex-spouse will be unable to obtain.
How will the life insurance policy be affected if my spouse has another baby?
If the court order states your ex-spouse must keep you or your children as beneficiaries, this holds true even if they have another child with a new partner. The new children would not benefit from any proceeds of a policy which name your children as beneficiaries.
My husband and I divorced 7 years ago and he just died. There was nothing stipulated in the divorce decree. Am I entitled to anything?
No, not being married anymore, there is no longer any insurable interest. There are a few exceptions however, so if you feel you are really entitled to something, you should consult with an attorney.
If I am named as the beneficiary, can the life insurance payout be challenged when the owner dies, such as by our children?
Life insurance goes to the beneficiary, it is completely exclusive of the estate law and whatever may be in place there.
Can the life insurance beneficiary be controlled by the will?
Life insurance is not distributed by a will and it can only be changed by changing the beneficiary on the policy. This means even if the will is to change, you are still entitled to anything you are stated as a beneficiary for.
Can life insurance payouts my ex-spouse received (from a parent) be divided up in a divorce?
Unless you were named as a beneficiary on the life insurance policy your ex-spouse collected on, then you are not entitled to any of the money and it will not be divisible in a divorce.
Can the beneficiary be changed even if the divorce decree states it may not be changed?
While the divorce decree prohibits the beneficiary from being changed, that won’t stop some people from trying. In situations like this, you need to have your attorney contact theirs, or take them back to court immediately.
My ex-spouse says I can’t be a beneficiary on his life insurance policy because it is through his work. What can I do about this?
That may not be true, but even if it is, he can still take out another policy naming you as the beneficiary. This is very common to do as a part of the alimony plan.
Can my ex-spouse take out a life insurance policy on our child even though we are already divorced and nothing was stipulated in the divorce decree?
A minor child is seen as an insurable interest by insurance companies, and a parent has every right to purchase a policy on them at anytime, regardless of the divorce.
My ex-husband just passed and it was just discovered he borrowed against his life insurance policy and still owes a large sum of money. Am I responsible for this debt?
No, your ex-husband’s estate would be liable.
I have been reading and discovered if my ex-spouse declares bankruptcy, alimony payments are not dischargeable. Is the same true for the life insurance obligation?
You should consult with an attorney, but generally if the life insurance is designated as alimony then it is not dischargeable either.
Lastly, if you’ve gone through a divorce and there’s no life insurance requirements – you’ll want to change who is the beneficiary! The Supreme Court just ruled in favor of an ex-spouse over a widow in a battle for life insurance proceeds just because the deceased didn’t change his beneficiary.
Quite a lot of information there, but hopefully there is something in there to answer the many questions most people have about divorce or obtaining life insurance after divorce.
We know we won’t be able to cover absolutely every situation, so if there are things you are still confused about, please don’t hesitate to reach out to us if you’re in the market for buying life insurance for a divorce decree. We are always happy to help people to better understand their own life insurance situation.