Divorce and Life Insurance

September 27, 2012

Life insurance is often not on the radar of people going through divorce, but the purpose of life insurance -- protecting the family when a financial contributor dies -- remains important after divorce. Life insurance is usually covered in the property settlement, and too often issues related to the effectiveness of the policy are overlooked.

Divorce agreements frequently require one of the divorced spouses to maintain a life insurance policy to protect the financial future of children and even the former spouse while child support and alimony is paid. While an insurance policy to protect the financial future of an ex may seem counterintuitive, the policy helps provide financial security to the children if an untimely death occurs. Life insurance issues are normally settled as a part of the property division agreement, and once the property agreement is signed it may be too late to address any deficiencies in the agreement regarding life insurance, such as a lapse in the policy. Moreover, problems may arise after the property agreement is finalized if a former spouse does not abide by the terms of the agreement. Therefore there are a few life insurance issues that should be addressed before the property agreement is signed.

First, make sure the current policy does not lapse because of lack of payment. If the premium payments for the life insurance policy are not paid, the insurance company will cancel the policy and protection will evaporate. If the paying spouse has to reapply for coverage, he or she will likely be subject to health exams and the premium may increase. Therefore make sure the premiums are covered even before the property agreement is finalized. To avoid a lapse in coverage, an attorney can ask for both former spouses to be notified if the premium is not paid. The insurance company will likely agree, since they are incentivized to keep the policy active.

Second, avoid being underinsured. Figure how much life insurance protection is required and ensure the policy will provide that amount. The death benefit of the policy should at least cover the costs of the covered ex-spouse's mortgage and the education costs of the children.

Finally and perhaps most importantly, make sure the proper beneficiary is identified on the life insurance policy. The individual who owns the life insurance policy controls the beneficiary designations and has the ability to change the designations even if the change runs counter to the divorce agreement. The most effective way to ensure the policy is in effect and names the appropriate beneficiary is for the benefitting ex-spouse to own the policy. As a result, the former spouse who benefits from the coverage is the owner and the paying spouse is the insured. The arrangement also helps to ensure the policy is not changed or canceled in violation of the divorce agreement.

If you are considering divorce, contact a family law attorney who can help you create a divorce agreement that addresses important considerations such as life insurance issues.

Article provided by Law Offices of Raymond Cash, P.C.
Visit us at http://www.queens-nassaufamilylaw.com