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Getting divorced? Review your life insurance for potential changes

Going through divorce negotiations can be very tricky, even if your divorce is a friendly one. In addition to the division of property, determining custody for children and finding new living arrangements, you might also need to review any life insurance policies you have.

Sometimes the state you live in may determine how property – including insurance policies – is divided. Some states are equitable distribution states, where the value of cash from a whole life insurance policy would be equally divided.

Other states are community property states, where a whole life insurance policy would be subject to review. For example, did the insured set up the policy prior to the marriage, and pay for it completely with his own funds? Or was the policy set up during the marriage, and paid for with community funds? A third option is a policy set up and paid partially from individual and community funds. Each of these scenarios could be discussed and negotiated in divorce court to determine proper distribution of the policy and cash value. Because term life insurance policies don’t have any cash value, they are generally not considered part of the community property.

In addition to negotiating division of current life insurance during the divorce proceedings, you and your soon-to-be-former spouse may also need to ensure you have adequate life insurance coverage – especially if you have children and one spouse will be paying child support.

For example, if you will receive child support from your former spouse, and they were to die unexpectedly, that source of income for your children would no longer be available.

Because child support is generally only paid until children reach the age of 18, experts often advise the parent paying child support to set up a term life insurance policy, with children as beneficiaries through a trust. That way you can stop the life insurance – or change your beneficiaries – when your children turn 18, or convert the policy over to a permanent policy for your own use.

If you are going through a divorce, make sure life insurance is discussed and negotiated through the proceedings to ensure that you, or the children are protected as your family needs have changed.

Douglas Budget

Written by lordsinsurancelog

July 28, 2011 at 10:32 pm

Posted in Insurance Tips