Navigating a divorce is complicated—dividing assets, negotiating childcare, and restructuring your life takes an emotional toll. After a divorce, many people choose to buy life insurance; 29% of people shopped for a life insurance policy in response to their recent divorce.
So what are the benefits of purchasing life insurance post-divorce, and how do you disburse your assets to beneficiaries?
Life insurance can provide a safety net after divorce should you pass away, primarily if your ex-spouse relies on alimony or child support payments.
Usually, term life insurance policies are an essential part of divorce settlements and can range in length anywhere from five to 30 years.
When shopping for your policy, it is essential to calculate the amount of coverage necessary to cover your financial obligations conditioned in your divorce decree, should you pass suddenly. Without a life insurance policy, your children may struggle without the proper financial support in the event they lose a parent.
For this reason, it is a good idea to name your ex-spouse as a beneficiary on your policy, if you share custody. Life insurance can cover mortgage costs and assist in the expense of a child's education.
To determine the amount of life insurance needed to provide for a child in the event of a primary caregiver's death, calculate the years until your youngest child turns 18, then multiply by your annual income. Some people choose to extend this calculation until their child is 21 to help cover higher education costs.
For example, if your youngest child is six years old and you make $50,000 a year, a $600,000 life insurance policy would provide for the child until 18. A $750,000 policy would cover them through 21.
When purchasing a life insurance policy, there are several ways you can choose to control the assets. You can decide how they're disbursed, and to whom, by:
There are a few ways you can approach naming beneficiaries for your life insurance policy after a divorce. You can choose to name your ex-spouse as the beneficiary of your life insurance policy and require they fund the payments via the divorce agreement. If you wish to have your ex-spouse pay toward your policy, it is essential to get this arrangement in writing during the divorce settlement.
It is essential to know you cannot name a minor directly in your life insurance policy, as policies cannot pay out funds directly to minors. If you have children who are minors, a trusted, responsible adult custodian should be the designated beneficiary of your policy.
You can also take out a policy on your ex-spouse, make the payments on it, and name yourself the beneficiary. You may only take out a policy on behalf of your ex if they influence your finances through payments like alimony or child support. The benefits of doing this include making sure the policy stays funded and maintaining power to name the beneficiary.
If neither of these options applies to your divorce agreement, you may consider naming a trust instead. A trust will ensure your current assets are protected and go to your children or designated beneficiary.
Life insurance plays a vital role in looking out for yourself and your children in the event of a divorce. Make sure to carefully review any contract or agreements, and consider making policy payments a part of the divorce agreement. Life insurance policies protect your children should a caregiver pass suddenly and are essential to consider during legal proceedings of a divorce.
If you are considering a life insurance policy, visit our Life Insurance page to learn how to find the best plan to fit your needs.