This is the fifth blog in the Divorce and Finances series, addressing common questions I hear as a Certified Divorce Financial Analyst (CDFA) during the pre- and post-divorce process. This blog will address common questions about insurance during and after a divorce settlement. A podcast version of this blog series can be found on our resource center here.
Should I consider additional life insurance now that I am divorced?
Life insurance is a great way to ensure that financial support would continue – even in unforeseen circumstances. If the supporting spouse dies unexpectedly the recipient will suffer a sudden and possibly catastrophic loss of income. To protect against this, it is recommended to consider purchasing a life insurance policy on the life of the supportive spouse with the recipient spouse as the beneficiary. It is an important risk management recommendation that, despite who bears the financial responsibility of paying the insurance premiums, both spouse receive annual notices on the policy and its in-force status.
Is it important to have life insurance after divorce if there are children?
Additional life insurance should also be considered if there is an obligation to support children until they are adults – in the event something unexpectedly happens to the supporting spouse before the children are emancipated. The children could be named as the beneficiaries, but if they are minors, a trust should be used and the trustee would manage the policy. Obtaining life insurance would require a medical exam and the supporting spouse’s consent. This should be done in a timely manner following the divorce and the divorce agreement should have clear expectations of when the policies need to be in place.
Should I consider disability insurance now that I am divorced?
Disability insurance helps replace income of the supporting spouse in the event they are unable to work. The recipient spouse usually asks for this and often it is paid by the supporting spouse as part of the overall negotiation of financial assets and support. Similar to life insurance, placing the policy in the beneficiary’s name, or requiring dual notice of in-force status helps to ensure that the policy does not get cancelled without one party’s knowledge.
For more relevant blogs on divorce finances, please check out the other articles in the series: