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If you and your spouse decide to get divorced, the individual who ends up making alimony payments does not need to protect his/her income when they die. The deceased ex-spouse’s estate is also not legally required to continue making support payments unless this was specifically stated in the original divorce agreement papers. Nonetheless, many individuals who end up divorcing depend on their ex-spouse financially. If they don’t have access to the required funds, they may not be able to cover the cost of basic needs, particularly if they have any children to support.
Financial Issues If you are divorcing, you should ensure a clause exists in your divorce settlement that states that the person making support payments must have current life insurance coverage. In most cases, the ex-spouse will be designated as the beneficiary of the policy and there is normally a required minimum amount of insurance coverage required. The life insurance policy should provide sufficient coverage so the individuals who will be receiving the support payments will receive an income close to what they would have received before the death of the payer. If only one spouse is paying support at least one child, arrangements should be made to ensure sufficient coverage to properly care for each child until they become an adult. Advantages of A Term Life Policy You should consider purchasing term life insurance if your goal is to protect any income you are giving your ex-spouse. Term life policies cost less than other types of life insurance coverage and policy holders normally will benefit from a consistent rate for the entire term. This means that you won’t be faced with steadily rising premium rates as you age. Many term life policies have a renewable option; this enables you to buy a new policy as soon as the current term of your existing policy expires. Fortunately, you will not be required to undergo another medical examination if you purchase a renewable term life policy. Given that term life coverage is one of the simplest and cost-effective forms of life insurance available, it is often used to protect financial payments made to an ex-spouse. Naming A Beneficiary It is important that you name a beneficiary for any type of insurance policy you purchase. You can decide who you wish to receive the benefits of your policy when you die, regardless of the individual’s age at the time. Therefore, designating your children as the beneficiaries of your term life policy can ensure all of the proceeds will be received by them. Setting Up A Trust for Your Children If you decide to designate your child or children as your beneficiaries, you have to set up a trust. This will be managed by a trustee until your children reach a certain age. By doing so, you can prevent the money from your term life policy from being automatically received by your child as soon as he/she turns 18 years old. It is up to you to determine an appropriate age when you believe your child will be financially responsible enough to receive the proceeds from the policy. You can extend the time the trust remains in effect according to your decision. Naming Your Ex-Spouse As Beneficiary Another option is to designate your ex-spouse as the beneficiary of your term life insurance policy. This may be a suitable option since this person will continue to be responsible for caring and providing for your children after you die. However, if you go this route, you need to feel comfortable that your ex-spouse will manage all of the benefits from your life insurance policy properly. If you receive support payments from your ex-spouse, you may want to name this individual as the beneficiary for your own life insurance policy. This is important if he/she will become the primary provider and caregiver for your children after you die. As you can see, there are several factors you need to consider regarding life insurance coverage when you divorce. Term life policies are often the best choice in such a situation because of their cheaper cost and option to renew. If you are unsure whether to designate your ex-spouse or children as the beneficiaries of your life insurance policy, talk to a trusted financial advisor or insurance agent. |
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