When a couple is unfortunately reaching the end of their marriage, they need to know how life insurance can help with a divorce settlement. Yet if you’re going through the heartache of a divorce, one of the last things you may be thinking about is life insurance. Still, did you know that life insurance is often required as a part of the divorce decree? This is usually in place to protect your spouse and/or children if anything should happen to you while the decree is in place.
How to arrange the coverage
Because insurance coverage is stipulated in the divorce decree for a specific amount of time, term insurance is usually purchased. Either spouse may ask the court to require life insurance, though it is typically the dependent spouse or the one with primary custody of the children. This stipulation needs to be covered during the settlement period by making sure that an adequate policy is ordered to be purchased with yourself as the beneficiary and preferably as the owner, since the owner of the policy controls it. The owner is able to change the beneficiaries. Remember that you can add beneficiaries to the policy such as a new spouse or children.
Taking care of the children
Unfortunately, minor children often find themselves at the middle of the divorce. In a divorce, one spouse frequently gets primary custody of minor children. It is essential that there is sufficient life insurance in force on that spouse to protect the children. Though it may seem easier to set them up as beneficiaries, they are not legally competent and doing so may cause more problems for your children than it solves. Consulting an attorney to set up a trust is a better option if you do not feel that your former spouse should be managing their money for them.
Cover all bases
Divorce can be extremely stressful and nerve-wracking, with stress-related conditions developing ranging from anxiety and depression to stomach issues. When you are going through the prequalification stage for life insurance, it is vitally important that you are up front about this. In addition to life insurance requirements, there may also be requirements for carrying health insurance, homeowners or renters insurance.
One final note on how life insurance can help with a divorce settlement
After the divorce decree has been fulfilled and is no longer in action, you can change the policy to provide income replacement benefits to your new spouse if remarried, provided that you remember to change your beneficiaries.