Many married couples have life insurance policies naming their spouse as the primary beneficiary.
Divorce impacts these policies, and the courts may dictate the changes.
Term life insurance
Policies that cover an individual for a set amount of time and pay a flat rate upon death are term life insurance plans. These products do not have any cash value and are not subject to distribution in divorce. When a couple divorces, each spouse can keep their policy as long as they can afford the payments.
Permanent life insurance
Non-term plans, such as universal, whole and indexed policies, have cash value and may be equitable assets in a divorce. There are two options available for splitting this money. The policy owner may offer another asset or buy out the other spouses half of the policy, or they may terminate the policy and split the payout.
Required life insurance after divorce
If the courts require a spouse to pay spousal or child support, they may also dictate that person maintain a life insurance policy. This policy is a resource to cover support payments if that person dies. If the divorce terms do not include a life insurance requirement, a spouse may take out a policy on their ex with their cooperation. Since only the policy owner can change the plan, taking a policy out on the other spouse may be the easiest way to ensure the beneficiaries remain in place.
Life insurance may be an important factor during a divorce. Knowing what options are available can prepare both parties for negotiation.