We have been talking about something that often goes overlooked in a divorce: term life insurance. Couples often invest in term life policies as an estate planning tool. The unexpected death of one spouse can be financially devastating to the other; if there are kids involved, the loss of the primary wage-earner can be a disaster.
A policy can be the basis of a contingency plan for divorced couples, too. The benefit payout can soften the blow that comes with the death of the ex-spouse that pays child support or spousal maintenance. If a policy on an ex is part of a family's safety net, though, family law practitioners recommend taking a few precautions.
First, both family law and insurance professionals suggest asking the insurance company to notify the beneficiary ex-spouse if the policy is unpaid or lapses for any reason. (This is something that can be included in a settlement agreement, too.) Another option is to transfer ownership of the policy to the beneficiary spouse. That way, the beneficiary will be in control.
Insurance professionals also believe these are effective strategies to make sure that a new husband or wife doesn't become the named beneficiary. It can happen intentionally or as an oversight, as other documents are changed to include the new spouse. Notification of changes or owning the policy will help to guard against this as well.
As we said in our last post, the policy is a financial asset, and how a policy is handled is often included in a settlement agreement. It's important not to overlook it when figuring out what will be best for you and your family.
Source: Live Insurance News, "Life insurance and divorce - what to do with a term policy?" Chris Taylor, July 23, 2012
Our firm handles similar situations to the one discussed in this post. If you would like to learn more about our practice, please visit our Libertyville property division page.