Do you need life insurance as part of a divorce decree?
Life insurance is a requirement for many divorce agreements.
And whether you have to provide life insurance or you’re the beneficiary receiving life insurance,
This guide – Life Insurance for Dummies will help you in your decision-making.
While this article helps you better understand life insurance and divorce,
Nothing replaces the legal advice of a good divorce attorney.
Life Insurance Ownership
If you remember nothing else about life insurance ownership, remember that the owner has the life insurance policy rights to make changes.
Why should that matter to you?
Policy Owner Rights
The owner of the life insurance policy controls the policy and can make any of the following changes.
Beneficiary Changes – the owner can add beneficiaries, remove them, or change the percentage to be received.
Premium Payments – the owner can stop paying the premium on the policy and let it lapse.
If it’s universal life insurance or whole life policy, the owner may pay less than the illustrated premium,
Leaving a policy that could lapse.
Accelerated Benefits – many policies have built-in provisions that allow a portion of the death benefit to be paid now,
If the insured is chronically or terminally ill.
The accelerated death benefit will reduce the amount that the beneficiary receives upon death.
Death Benefit Changes – the owner can reduce the face amount of the life insurance policy.
Policy Loans – the owner may take loans out against the cash value of a universal or whole life insurance policy.
Any outstanding loan at death reduces the amount paid to beneficiaries.
Collateral Assignment – the owner may pledge the life insurance policy as collateral for a loan.
At death, the lender would receive the amount owed to them with the remaining balance paid to the beneficiary.
Absolute Assignment – the owner may permanently transfer ownership of the policy to someone else.
After reading the above, you’re probably thinking that you’re going to want to be the owner of any life insurance policy.
The following are reasons why you might want to be the owner.
Divorce Settlement Options
When the insured dies, the beneficiaries will receive the death benefit in a lump sum, or will they?
Did you know that the owner of the policy may control how the beneficiary receives the death benefit?
The owner has the ability to set up how the death benefit is paid to beneficiaries…
And you might not know about it until a death claim is filed.
You would probably want to know about that upfront, right?
Whether you are the insured or the beneficiary, it’s important to know that this option exists with many policies.
We dedicated an entire article to the settlement options available – here
Beneficiaries in Divorce
Did you know that many states have laws on the books that remove the divorced spouse as beneficiary of life insurance?
There are at least 26 states with some form of “re-designation statute” on the books.
This type of statute will remove the ex-spouse as the beneficiary in divorce automatically.
Make sure you discuss this with your attorney.
You don’t want to assume that you are automatically still the beneficiary after the divorce.
Which leads to another common question.
Can you change the beneficiary during your divorce proceedings?
Many states require that an affidavit or certification of insurance coverage be filed as part of the divorce.
Courts may require that all coverage listed on the above affidavit be maintained without changes during the divorce.
How much life insurance is required in the divorce decree?
It’s rarely a problem with life insurance underwriting to obtain the amount of life insurance indicated in the divorce,
Unless it’s considered excessive.
Even then, we can usually meet your needs by working with multiple life insurers if needed.
Paramedical exams may be required depending on the company you apply to.
The price for life insurance is less expensive for fully underwritten policies vs non-med life insurance.
Ex-Spouse Has Medical Issues
Medical issues may complicate divorce life insurance requirements.
This may be due to the potential cost and/or ability to obtain coverage.
There may be a situation where life insurance companies add an extra expense to the policy called a table rating.
Each table rating adds approximately 25% to the price (1-16 tables are available)
A benefit of working with us is we know health impairments,
And how to find the most affordable life insurance based on the health issues at hand.
Why would you care about the price if your ex has to pay for coverage?
Some states have laws on the books that give your ex-spouse a free pass from having to get life insurance.
Connecticut for example has a law on the books that states:
The court may order that a party obtain life insurance as such security unless such party proves, by a preponderance of the evidence, that such insurance is not available to such party, such party is unable to pay the cost of such insurance or such party is uninsurable.CT General Statutues Section 46b-82
That’s why you want to get the best rates possible for life insurance.
If there is a family history of heart disease or cancer, we’ll steer you to the best life insurers based on your family history.
Even if the insured has been denied life insurance with another company, they may still be insurable elsewhere.
Whether it’s heart disease, cancer, diabetes, drug/alcohol history, weight issues or anything else,
There is usually a policy available for most people.
Other options for the truly uninsurable include guaranteed issue life insurance and accidental death insurance.
Divorce Life Insurance Policies
While it’s important to get a copy of the life insurance policy, there is something even more important to get.
It’s called a “verification of coverage” request.
While the life insurance policy contains the contractual terms and the original owners and beneficiaries,
It doesn’t reflect the current setup.
That’s where the verification of coverage works best as it tells you the current ownership and beneficiary information.
The verification will also tell you if the policy has been assigned for a debt.
If a permanent life insurance policy is part of the divorce, insist on getting two “in-force illustrations”.
- The first request should be to illustrate the policy based on the current premium that is being paid.
- The second request should ask what premium needs to be paid in order to have the cash value equal the face amount of the policy (endow) at age 100.
The in-force illustration shows how the policy is projected to perform based on the premiums that are being paid.
Some life insurance companies allow you to save money by adding an exclusion rider to the policy.
The downside of exclusion riders is that the policy will not pay the death claim if the insured dies from the excluded activity.
If you’re the beneficiary of the life insurance policy, make sure that there is no exclusion rider.
Term Life Insurance in Divorce
Term life insurance is the most common type of life insurance used in divorce.
It covers most needs and is the most affordable life insurance.
Term life insurance durations range from 10-40 years depending on the company, your age, etc.
You don’t have to keep the term policy for the entire duration if your divorce decree is satisfied sooner.
The amount of life insurance required by the divorce settlement may allow a reduction in coverage over time.
Ways to address reducing life insurance over time, include:
Policy Face Amount Reductions – The owner of the policy may request a face amount reduction.
Keep in mind that companies may require a policy to be active for “x” number of years before changes are allowed.
The other thing to keep in mind is that pricing is less competitive when changes are made to the policy.
Multiple Life Insurance Policies – You can buy multiple life insurance policies with varying term lengths.
This is an easy way to have multiple policies with varying term lengths.
When one policy’s level term period ends, simply cancel it leaving the remaining coverage in effect.
One Policy – Multiple Term Riders – With this type of term life policy, you have one policy for the coverage amount needed.
As a term rider matures, it simply drops off the policy.
The main disadvantage of this type of policy is that very few companies offer this type of setup.
There are pros and cons of each of the above that we’ll walk you through when setting up your life insurance.
We can also help you with any needs analysis to determine how much life insurance to get.
You probably can’t change the beneficiary during your divorce due to “Automatic Orders” that many states have that prohibit changes while the divorce is pending.
Life insurance is an asset during divorce. While universal life or whole life insurance cash values are assets, term life insurance should not be overlooked.
Probably not. Your state may have “Automatic Orders” that require the continuance of life insurance during the divorce proceedings.
Let us help you find the best life insurance policy to help meet the life insurance need.
Please take a few minutes to submit your request today.
Legal Disclaimer – We’re not lawyers and don’t give legal advice.
Michael Horbal is the founder and owner of RiskQuoter.com and a licensed life insurance agent who has helped thousands with affordable protection for families and businesses.