Marriage and divorce are both very common practices all over the world. In the United States, more than 90 percent of couples marry before the age of 50 and, shockingly, 40 to 50 percent of those end in divorce. The divorce rate for subsequent marriages is even higher. Getting married is such a blissful time in your life. From the wedding planning to the big day and then maybe even that romantic honeymoon. When you are saying your “I dos”, you don’t even think about the chance that someday in the future you could be signing divorce papers.
It’s great to live in the moment, but it’s also important to plan for the future. There are so many “what ifs,” and you truly never know what the next day, week or even year will bring. Divorce is a life-changing event and doesn’t just bring emotional stress but also bring legal and financial hassles.
The divorce process can be lengthy with all the details to be sorted through. One important detail that shouldn’t be missed is life insurance. If you have life insurance, it’s most likely in some way connected to your spouse. During the divorce process, you will need to think about and determine what changes need to be made to ensure you are covered in the future.
When it comes to life insurance after a divorce, here are some important financial things to think about.
1. Consider your beneficiaries
Your spouse is probably listed as your beneficiary on your life insurance policy. If you were to die, you want to make sure your death benefit goes to the person you wish to receive it. Now would be a good time to change your beneficiary designation to someone other than your spouse if you wish.
2. Take a close look at child support and future alimony
If you’re a full-time mom, child support will help cover the costs of raising the child and other expenses that go with the territory. Alimony payments are there to help the dependent spouse maintain the lifestyle to which they have grown accustomed during the marriage. If the person ordered to make these payments to their ex-spouse were to pass away, it could create a financial burden.
You may want to consider protecting this income with a life insurance policy if you are to receive alimony or child support. A way to protect this income would be to set up a policy on your ex-spouse with you as the policy owner. It’s important to make sure that the policy coverage will adequately replace the money you would be receiving through either child support or alimony.
3. Make sure you control your ownership rights
Very important: You want to make sure the policy is being paid. If your ex is responsible for making the premium payments and happens to miss a payment, the policy can lapse or get canceled. Making yourself policy owner ensures that it gets paid. You get the statements, you pay the bill and you have the peace of mind knowing that you’re covered.
Being the policy owner is also beneficial in that you are in charge of making any changes to the policy, including beneficiary changes. If your ex was the policy owner, this would allow them to make changes and could ultimately replace you as the beneficiary, leaving your income unprotected.
When looking to protect your alimony and/or child support income, term life insurance is a great option. Term insurance is cost effective and offers a specified period of coverage. Typically, you are eligible to receive alimony until you remarry. If you don’t plan on getting married again, then you may want to consider a more permanent option for life insurance. With child support, term insurance is appropriate because you can receive payments until your children become adults.
It’s important to understand your life insurance coverage and options before getting divorced to make sure you have the adequate coverage in place after your divorce. Securing policy ownership and understanding the options for beneficiaries are important details for providing for children and maybe even your own lifestyle after divorce. This isn’t something you have to handle alone. There are other great resources for you that include attorneys, financial advisers and even your family.
More: 7 Ways to help your children during your divorce
Abby Reddy is a Chartered Life Underwriter and the vice president of marketing and web at Quotacy, an online life insurance agent. Quotacy offers a free life insurance calculator and accurate quotes on term policies, all without requiring any personal contact information.