Divorce can bring about many questions, one of which being how to manage your life insurance policy. What to do with your life insurance policy when it comes to a divorce can depend on a variety of factors, including the type of life insurance coverage you have, who your beneficiaries are how your needs have changed and more. In this article, we’ll help you decide how to navigate decisions about life insurance after divorce.
Is a life insurance policy a marital asset?
While a traditional term life insurance policy isn’t an asset, the cash value of a whole life insurance policy can be considered a financial asset. A marital asset is an investment you and/or your spouse made that can generate a monetary benefit. In addition to the cash value of a permanent policy, other marital assets typically include stocks, bonds, mutual funds or retirement accounts.
Potential Life Insurance Issues During Divorce
Although it isn’t ideal, there’s a chance you’ll be financially connected to your former spouse even following a divorce. Whether you have children together or are financially dependent upon one another, the topic of life insurance should be discussed during divorce proceedings to ensure you’re both still supported in the event one of you is no longer around. This could better help you:
Determine the split of the cash value: If you and your spouse had a permanent life insurance policy, it likely will have accumulated a cash value over time. When you divorce, you’ll have to decide how to distribute that cash value between the two of you.
Protect alimony payments or child support payments: If you need to determine a schedule for alimony and child support payments as part of the divorce process, you’ll also need to discuss how life insurance will be allocated toward those expenses if one of you passes away.
Protect pension or retirement funds: If you intended to use the cash value of your life insurance policy to supplement retirement income, make sure you both agree on what that allocation will look like going forward.
Each couples’ situation is going to be different, therefore it’s important to consult with your lawyer about what is right for your financial needs.
Changing the Beneficiary on Your Life Insurance Policy
Many people who are married list their spouses as the primary beneficiary to their life insurance policy. This makes the most sense, as this ensures that things like the mortgage and utilities still get paid and any financial support for children is available if one of you passes away. In the case of a divorce, however, there’s a good chance you’ll no longer want your previous spouse to be your beneficiary. Many life insurance policies will allow you to change the beneficiary at any time. When you’re ready to choose a new life insurance beneficiary, the easiest way to do so is often by contacting your life insurance agent.
SelectQuote Can Help You Navigate Changes to Your Life Insurance Policy
A divorce can be stressful, but figuring out your life insurance doesn’t have to be. When a major life event such as a divorce takes place, SelectQuote will help you weigh your options for life insurance and determine what is right for you. In just minutes, we can compare your current coverage to other policies from some of the most trusted life insurance carriers in the nation, saving you time so you can focus on what matters most: your family.
