Marriage may not be a life term but your life insurance should be
Many Virginia couples have a life insurance policy with their spouse named as a beneficiary, nothing newsworthy there. But what happens to that life insurance policy after your divorce? One lawyer, a certified financial planner recently reported that many divorce agreements require one spouse, typically the one who has been charged with paying alimony and or child support, to maintain a certain amount of life insurance in the case of his or her death.
The divorce decree might specify the term life insurance must name the ex-spouse as a beneficiary and require a certain amount of insurance should the paying spouse die before his or her financial obligations are met. If your divorce attorney is negotiating life insurance coverage as part of your settlement, here are three common mistakes to avoid in the process.
First make sure your soon-to-be ex-spouse will not be underinsured. Typically you want to ensure you have enough insurance coverage to pay off your current mortgage, credit card debt and educational costs for your children, including college expenses. At the very minimum, you want to ensure enough coverage for the amount set out for the full length of your settlement agreement.
Make sure premiums are paid up and do not lapse. A number of issues can arise from a lapsed policy, including cancellation requiring him or her to have to reapply, which may subject your ex-spouse to medical exams and an increase in premiums with less coverage. Ask your divorce attorney to ensure your ex puts your name on the policy so you are notified should the premiums not be paid.
Lastly, to ensure your ex doesn't name his or her new spouse or someone else as a beneficiary have your attorney request you be the owner of the policy. Only the owner can change the beneficiary designations and although your divorce agreement may state changing the beneficiary on a policy is not allowed, it happens. The insurance company should not have a problem naming you as the owner and your ex as the insured person and you as the beneficiary.
Follow these simple steps when working out some of the financial aspects of your divorce and you can avoid potential litigation down the road should your divorce agreement say one thing and his or her life insurance policy say another.
Source: The Huffington Post, "Divorce and Term Life Insurance: Avoid These Three Common Mistakes!," Gabrielle Clemens, July 16, 2012