Life insurance is one factor that is often overlooked by couples when preparing for a divorce. However, it’s important to keep life insurance in order for the financial protection of both parties and their children. There are different circumstances in which a policy can be affected by divorce. To better understand the process, learn more about the impact below.
3 Ways a Divorce Can Impact Your Life Insurance
1. Your Beneficiaries Need to Be Modified
Your life insurance policy provides a payment to your named beneficiaries upon your death. It’s not uncommon for divorced couples to fail to update their beneficiaries, either excluding an ex-spouse or modifying their payout percentages after the divorce. Some policies have irrevocable beneficiaries, in which those designated as recipients cannot be changed. Your insurance agent can help you change your policy if your beneficiaries are revocable.
2. Some Policies Should Be Counted as Assets
Term life policies, or standard policies, do not feature supplemental components and have no cash value, so they don’t need to be counted as an asset in a divorce. Whole and universal life policies, on the other hand, accumulate cash value and allow policyholders to forgo the death benefit and withdraw their cash value at any time. These policies should be counted as marital assets to be divided during a divorce, which could mean cashing them out early to satisfy your settlement.
3. A Judge Could Order Life Insurance as Spousal Support
If one party is financially dependent upon the other, a judge might order life insurance as part of spousal support alongside alimony. This means the supporting spouse is required to own a life insurance policy that will financially provide for any dependent children or pay for alimony in the event of their death. A life insurance agent can help you choose an adequate policy that meets the court’s order by the deadline.
If you need help navigating life insurance during a divorce, the insurance agents at Southern Insurance Associates in Hixson, TN, can help. The local agency offers affordable and viable options for life, auto, home, and commercial insurance. Call (423) 296-0626 to request a consultation or visit them online to learn more about their services.