How does divorce affect your life insurance decisions?

Forbes encourages California couples to factor life insurance into the financial consequences of divorce. Life insurance may help cover a divorced spouse’s financial obligations if he or she were to become unable to make payments.

What factors influence your need for life insurance?

Whether you have a life insurance policy or think it may be prudent to purchase or require coverage as part of your divorce settlement, the same questions are relevant:

  • What is the purpose of life insurance for your personal circumstances? Do you need to pay college expenses for your children? Will one spouse get spousal support or child support?
  • What is an adequate amount of insurance?
  • What mechanism can ensure that the obligated spouse maintains coverage?

How may insurance needs change over time?

Life insurance is not the kind of policy you can tuck away and forget. You may need to reassess the amount of desired insurance from time to time. If a spouse were to experience a change in financial fortunes, the obligation to maintain insurance and the amount of coverage may require an adjustment. In some cases, the divorce settlement may contemplate a reduction in coverage over time. Even the need for a policy itself may change.

How can you prevent a policy from lapsing?

The divorcing couple will likely need to agree on a mechanism to ensure payment of premiums and maintenance of the policy for the intended term. For example, they may assign ownership of the policy to the spouse who is the beneficiary or put into place third-party authorizations to prevent a possible lapse.

Divorcing spouses should inventory their existing life insurance policies as they evaluate their overall financial plan.

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