Life
Insurance
after
Divorce?
M
ost people buy life insurance to help family members stay financially secure after the
policyholder’s death. Yet, when a marriage ends, the topic of life insurance is too often
overlooked. These five tips can help you and your soon-to-be-ex discuss important
changes to your policies before you sign the papers:
Read the divorce agreement carefully. “Life insurance policies are often used to secure
alimony and child support payments,” says Steven Weisbart, Ph.D., senior vice president and chief
economist at the Insurance Information Institute. Before you sign any documents, make sure they
meet your needs and that you’ll be able to comply with them. Divorce agreements are legally binding
and can be difficult to alter.
Discuss duration of coverage. The time frame for any obligatory life insurance coverage
varies, often depending on the length of alimony and the ages of the children. If you’re purchasing
insurance to protect a child financially, look into affordable term life or decreasing term life plans
with coverage that expires when the child support obligation ends.
Decide who will pay the premiums. Having your ex-spouse pay the insurance company may
be convenient, but if you’re concerned about the possibility of default, ask your ex to pay you and
then pay the premium yourself. Or, have your ex add you to the policy record so that you may
receive duplicate copies of billing and lapse notices. “The consequences of your ex not paying you
are less than if he or she doesn’t pay the insurance company,” Weisbart says. “Failing to pay the
insurance company could cost you the policy.”
Re-designate beneficiaries. Depending on the divorce settlement, many couples will rename
their beneficiaries from each other to their children. In some states, probate laws automatically
disqualify a former spouse from receiving life insurance proceeds unless the insured re-designates
their ex-spouse after the divorce. If the children are minors, consider appointing an adult custodian
to receive and handle the benefits on their behalf. Be sure to specify when the money will be
transferred to the children and the percentage each child is to receive, Weisbart says. And keep in
mind that beneficiaries cannot be re-designated after the insured’s death, so it’s critical to keep the
policy up to date.
Determine how much coverage you’ll need. Examine what your ex-spouse’s financial
situation would be like if alimony and/or child support payments ended. Talk with your State
Farm® agent and divorce attorney to arrive at a specific amount. The Insurance Information
Institute offers more information on reviewing insurance coverages during a separation or divorce.
Carl Schindler, LUTCF, CSA
Agent, State Farm Insurance
Carl Schindler is a 41-year
State Farm Insurance agent in
Morgan Hill. His agency has
been voted #1 in Morgan
Hill for the past 5 consecutive
years. He specializes in Auto,
Homeowner’s, Life & Disability
Insurance. Visit StateFarm.com/
CarlSchindler or call (408) 779-
6969.
Are You Financially Prepared For The Death Of Your Spouse?
When developing financial plans, couples need to consider what will happen when one of them
passes away. The Census Department reports that in 2009, 2.4 percent of all men were widowed
and 9.3 percent of all women were. After age 65, 41.3 percent of women were widows. The death
of a spouse isn’t a theoretical number: It’s something that could very well affect your family.
As part of your financial plan, you should consider what will happen to your family’s income
and expenses when one spouse passes away. If the spouse was working, that income will be lost;
if the spouse was retired, the pension could be. Social Security benefits may make up some of the
lost income, especially if there are minor children in the household.
Expenses may go down, but don’t depend on it. If there are minor children, then childcare
expenses are likely to increase with only one parent in the household. If the family received
its health insurance from the deceased spouse’s job, then those costs may rise. On the other
hand, some of the deceased’s expenses will be eliminated. With retired couples, research by the
Department of Health and Human Services on widows shows that household costs decreased
about 20 percent when the husband passed away; in some cases, her income decreased by 50
percent or more when her spouse’s income was gone.
Careful planning for savings, pension elections, and life insurance may help your family avoid a
financial crisis on top of personal sorrow. The proper option will be different for each couple, but
the first step should be a discussion about what would happen should tragedy hit tomorrow.
G M H T O D A Y M A G A Z I N E
MARCH / APRIL 2015
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