Taking out a life insurance policy on your ex-spouse is the last thing you would ever think of doing when getting a divorce.
After all, what would be the point of having a life insurance policy on a person you are permanently parting ways with?
Surprisingly, having a life insurance policy on your ex-spouse has its benefits; although sometimes ordered by the court, it is quite significant.
Oftentimes, life insurance for an ex-spouse would be used to secure an insurable interest such as alimony or child support. This article reviews what life insurance for an ex-spouse looks like.
Can I Get Life Insurance On My Ex-Husband Or Ex Spouse?
While life insurance on an ex-spouse might make sense to you, there are rules to it. And it can be as complicated or as easy as you make it.
You are probably in the same situation and don’t know what rights to life insurance you and your ex-spouse will have.
Below are a few rules for getting life insurance on an ex-spouse.
Court-ordered Life Insurance
A lot of times when divorces end with bitterness, and it is understandable when a person is not willing to get a life insurance policy on their ex-spouse.
During a divorce settlement, the court might order you to buy an insurance policy on your ex-spouse so that in case you die before paying the full amount required for alimony or child support, the policy proceeds would be used to complete the remaining amount.
This is called court-ordered life insurance.
When an Ex-spouse Can Collect Life Insurance Proceeds
If an ex-spouse is still the beneficiary of the life insurance policy, then they will receive the proceeds unless the policy is canceled or the beneficiary changed.
If the ex-spouse is the named beneficiary at the time of the death of the policyholder, the insurer pays out to them.
In some cases, a court decree might require an ex-spouse named as the beneficiary of the life insurance policy.
When An Ex-spouse Can’t Collect Life Insurance Proceeds
Some insurance policies have clauses that prohibit an ex-spouse from receiving life insurance benefits.
Also, some states have put up laws to prevent the same. So as long as the two people are divorced, the named beneficiary will not receive the benefits.
Oftentimes, this is to prevent conflicts among family members and to reduce life insurance fraud.
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Can I Keep My Previous Life Insurance Policy?
Will it be a good idea to keep your previous life insurance policy? After divorce, there might be a need to buy a new life insurance policy or update an existing one you had with your ex-spouse.
If it is an existing joint life insurance policy, you might have to separate it. Unfortunately, this option is only available with some insurers, so it might not be applicable to you if your insurer does not offer it.
The good thing is, you could still work around it and either cancel it or take over it while your ex-spouse purchases a new one.
If you choose to cancel and buy a new one, the premiums will not be the same because of age issues and possible health problems, if any.
It would be an advantage if you had separate life insurance policies at the time of divorce. This way, you can keep the policy and continue paying for the premiums for the initial amount of coverage.
The only problem is if it does not provide enough coverage for your needs since a lot of things are bound to change after divorce.
However, you could purchase another policy to supplement the coverage for the existing one.
So what is the essence of having life insurance after divorce?
Life Insurance After a Divorce
If you are going to buy a life insurance policy after divorce, there are a few pointers to keep in mind.
First, you need to establish how much coverage you will need and for what period. This depends on the amount of alimony or child support needed.
For instance, if $10,000 is needed for child support for 5 years, you will need to buy a life insurance policy spanning within that duration and offering an equal or slightly more amount of coverage.
There is also a need to re-designate the beneficiary, especially if the one named before was your ex-spouse.
Also, don’t forget to carefully go through the agreement so that you understand what you are getting yourself into.
Why You Need Life Insurance After Divorce
There are a few cases where you might need to take out life insurance for your ex-spouse; this is usually when there is an insurable interest. Here’s everything you need to know about life insurance for alimony and child support.
Life Insurance for Child Support
Life insurance is an excellent way of securing child support payments and ensuring their continuity in the event of the paying parent’s death or when they default the payments. It is necessary for the parents to pay for the support of their children even after a divorce. And even if the custody of the children is not given to the providing parent, they will be required to make the child support payments to the custodial parent. This is one way of realizing the goals they set for the children during their marriage. For instance, ensuring that the children get the best education or supporting a certain lifestyle for the kids.
The child support payments might be required to be made for a longer period if, by the time the divorce is settled, the children are very young. The biggest concern in such instances is how to ensure the payments continue even after the death of the paying parent, and this is where life insurance comes in. And one of the biggest concerns is, ‘who should you name as the beneficiary for the policy?’ Here are the options;
You are winding up with the divorce settlements, but you realize that your soon-to-be ex-spouse is still the beneficiary of your existing life insurance policy. Perhaps you didn’t have a policy before and decide to take one out to secure the child support payments. Either way, you shouldn’t name your child as the policy beneficiary as it might turn out to be a very expensive process in the future.
Every state has laws that consider a minor to have reached the age of majority. In most cases, when a child attains the age of 18 years, then they are considered of majority age. As such, the life insurance proceeds will not be paid directly to the minor(below 18 years) instead. The court will be forced to appoint a guardian who will receive the funds on behalf of the child until they turn 18 years old.
The court-appointed guardian could be your ex-spouse, and this would be a problem if you didn’t want the funds to go to your ex-spouse for various reasons. What’s more, the court will appoint whomever it considers is fit enough for the responsibility. After they reach the majority age, the remaining proceeds will be given to them, and at that age, they might not be mature and responsible enough with the money. As such, you might want to reconsider naming your kid as the policy beneficiary.
Under the Uniform Transfer to Minors Act, a custodian is a better alternative to designate as the beneficiary. When you designate a custodian as the policy beneficiary, it doesn’t mean that they are entitled to the proceeds; they just receive them on behalf of your child. So the only difference is that the proceeds are not made directly to the child, but instead to the custodian who gives it to them.
So the named custodian holds the proceeds for the child before it is automatically transferred to them when they attain a certain age.
If the paying parent dies, then the surviving ex-spouse is under a moral duty to use the life insurance proceeds to support their children, just as the divorce agreement requires them to. Unfortunately, these proceeds are exposed to the ex-spouse’s creditors and could be affected should the ex-spouse be declared bankrupt. The other downside is that there is no assurance that the ex-spouse designated as the beneficiary will use the proceeds to finance the child’s lifestyle and education.
Another concern is whether the trust or the ex-spouse should own the policy. The paying parent might change the beneficiary if they are the owner of the policy, but having the recipient as the owner helps to curb this problem.
Life insurance for Alimony
During divorce and separation, the providing spouse might be ordered by the court to pay for life insurance to guarantee the alimony amount to their ex-partner.
This is to prevent an instant halt on the alimony payments should the paying ex-spouse die or default.
In most cases, the paying partner might be ordered by the court to name their ex-spouse as the owner of the policy, especially if they have repeatedly gone against the life insurance obligation.
While the supporting ex-spouse is bound by law to make timely premium payments, the obligation can be modified based on different circumstances.
A term policy spanning for the amount of time the alimony is needed could be purchased in order to avoid unnecessary premium payments.
Alternatively, your divorce attorney could help establish the face value amount of the alimony before agreeing on an amount large enough to cover it.
If you are dependent on your ex-spouse to pay for child support or alimony, you will need to get a life insurance policy if you don’t already have one to secure these payments.
Don’t take out a life insurance policy after the divorce is finalized, and it might be difficult to get your ex-spouse to make these payments, especially if they refuse to cooperate with the life insurance requirements.
The best time to establish a life insurance policy for securing any insurable interests is before the finalization of the divorce settlement.
This way, if they are uninsurable for any reason, e.g., health reasons, you could find alternative ways of ensuring that alimony or child support is secured.
Frequently Asked Questions
Can you get a life insurance policy on an ex spouse?
Yes, you can get life insurance on your ex-spouse as long as there is some “insurable interest” like court-ordered life insurance or your ex allowing you to take out a policy on them and signing the application.
Can I get life insurance on my ex husband without him knowing?
No, you can’t get life insurance on your ex-spouse without their knowledge. It’s illegal and if the insurance company can prove you took out a life insurance policy without someone’s knowledge they can refuse to pay the claim.
Does divorce change life insurance beneficiary?
Divorce doesn’t change the life insurance beneficiary. The only person who can change a beneficiary on a life insurance policy is the Policy Owner. Whichever ex owns the policy will have the beneficiary control.
What happens to life insurance if you divorce?
Nothing happens to your life insurance policy if you divorce. However, the owner of the policy can make any change they deem necessary (such as who the policy will pay out to or to keep the policy active). While the court may order you to have an individual policy, they can’t do anything to your current life insurance policy.