When we talk about marital property, many people think about the tangible stuff -- the cars and the family silver, for example. A valuable item is often overlooked, though: a term life insurance policy.
Couples with children may want to think about term life insurance as a way to provide for the financial needs of children in the event of the death of the parent responsible for child support. Couples without child support concerns can consider a life insurance policy as an asset in the division of property. Either way, couples divorcing in Illinois may want to consider an existing or future term life insurance policy as they work through their settlements.
Settlement agreements often include provisions that require an ex-spouse obligated to pay child support or spousal maintenance to maintain or to obtain life insurance. The rationale is the same as it is for married couples: It's important to make sure the family is taken care of if something happens to the primary wage-earner.
Generally, settlement agreements specify the minimum amount of coverage. That amount should be enough to handle the payment of a mortgage on the family home in which the children reside, to cover outstanding debt and to handle the future educational needs of the children, including college.
Of course, just as things go wrong in life, things go wrong with insurance coverage. Miss a payment, for example, and the insurance company can cancel the policy. The problem in these cases is that re-establishing coverage may not be possible. As we age, coverage becomes more expensive; if we develop chronic illnesses or our health deteriorates for any reason, any coverage we can get may not be enough to make up for the lost income.
Family law and insurance professionals have a few ideas about safeguards against these and other turns of events. We'll go into those in our next post.
Source: Live Insurance News, "Life insurance and divorce - what to do with a term policy?" Chris Taylor, July 23, 2012