Understanding life insurance beneficiary rules after divorce
Learn how divorce impacts life insurance policies and what you can do to navigate these changes to help ensure your financial security
Divorces are typically very complicated and stressful experiences. Navigating this new life can be difficult, and the emotional nature of a divorce settlement is magnified when handling issues like alimony, child support payments, and the division of marital assets.
One of the things often overlooked in divorce agreements is life insurance. Nevertheless, it can play a significant role in divorce, especially if you have children or a mortgage. Considerations for life insurance after divorce include whether to change your beneficiary designations, or to purchase a new policy to ensure it financially protects your dependents.
Here’s what you need to know about what happens to life insurance in divorce, and life insurance beneficiary rules after divorce.
In this article:
The impact of divorce on life insurance policies
How divorce impacts a life insurance policy depends on a couple of factors.
The first is the type of life insurance policy you have. While there are many types of life insurance, the two most common are term life insurance and permanent life insurance (including whole life insurance).
As a financial consideration, existing life insurance policies will be assessed as part of your divorce proceedings. A term life insurance policy is not treated like a financial asset. However, the cash value of a permanent life insurance policy may be considered a joint financial asset.
The second factor is that a divorce settlement can also result in you having to purchase a new life insurance policy. Court-ordered life insurance is just that — the court orders you or your former spouse (or both) to buy life insurance to support the ex-spouse in case of your death.
You may also voluntarily purchase a new policy to protect children or dependents if the divorce decree results in you becoming a single parent.
How to update your life insurance policy post-divorce
When it comes to life insurance after divorce, you may want to adjust your existing life insurance policy to meet your new needs. Begin by reading through it to determine the amount and type of coverage, the coverage period, and the beneficiary or beneficiaries. You should also address beneficiary designations and children after divorce.
Remove your former spouse and decide on the new beneficiary
Most married couples with life insurance name their spouse as the policy’s primary beneficiary. However, after a divorce, you may not want your former spouse to benefit from your death.
The divorce laws of some 23 states automatically revoke a person’s beneficiary designation upon divorce, which necessitates naming a new beneficiary.
In divorce cases where you owe alimony or child support, the court may require you to keep your former spouse as the beneficiary on your life insurance policy.
If you remove your former spouse, you must name a new beneficiary (or multiple beneficiaries). That might be a new partner or spouse, your adult children, a trust, other friends or relatives, or even a charity.
How children play a part in your life insurance policy
If you have children, you may want to list them as the beneficiaries of your life insurance policy. While this seems like a good idea, you may want to reconsider. This is especially true if your children are minors.
In most states, a person must be 18 or older to receive a life insurance death benefit.
Additional complications occur in cases involving a beneficiary under the age of majority. These situations result in court-appointed guardians deciding how to administer the life insurance proceeds, which can take months or even years to resolve.
To ensure your children receive the death benefit according to your wishes, consider the following three options:
Designate a custodian: A custodian should be a trusted individual (a family member, close friend, etc.) who controls insurance payouts while acting in your children’s best interests. They must be specified in the policy unless they are the surviving parent.Create a life insurance trust: Trusts are legal entities that hold assets for the benefit of other people or entities. A life insurance trust can distribute insurance benefits to your children based on your preferences.Retain your former spouse as the primary beneficiary: If you remain on good terms with your ex-spouse and they have custody of the children (or you both have shared custody), this is the easiest solution in most cases.
Alimony payments and child support obligations
Protecting alimony and child support payments is a significant issue during a divorce. This is especially true in the following situations:
You have primary custody of the childrenYou and your former spouse have shared custody and substantially different incomes
As part of your divorce decree, the court may order the higher-income spouse to buy a life insurance policy to protect future child support obligations. Select a policy that will provide coverage until all children are adults.
Life insurance can also secure alimony payments in the event of the paying spouse’s death. Under this arrangement, the life insurance payout (as a lump sum payment) would cover the total alimony obligation amount.
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Common challenges in managing life insurance post-divorce
Whether you need to obtain a new policy or update an existing one, there are many complexities surrounding life insurance and divorce settlements. Knowing how to address these challenges, like what disqualifies life insurance payout, can help you avoid wasting time and money. Here are some life insurance and divorce issues you may encounter and how to resolve them.
Navigating policy ownership issues after divorce
A divorce can lead to both parties wondering who is responsible for life insurance premium payments, especially with the additional complication of child custody arrangements.
If the divorce results in you obtaining primary custody and you have doubts about your former spouse’s financial dependability, you should consider becoming the policy owner and paying the premiums. This mitigates the possibility of lapsed payments and a loss of coverage.
A final policy ownership issue you may experience after a divorce is whether you can remain on a former spouse’s life insurance policy. No life insurance beneficiary rules prevent someone from keeping the same policy following divorce. However, unless the divorce agreement grants you ownership of the policy, this decision is entirely up to your ex-spouse.
Ensuring adequate life insurance coverage after divorce
Your divorce may leave you needing to purchase a new life insurance policy, perhaps for the first time. You want to buy the right amount of coverage to ensure the financial security of your loved ones in the event of your death.
Generally, your policy should provide enough coverage until your youngest child turns 18 (or 21 for more conservative estimates). Adequate life insurance coverage should account for the following financial obligations:
Children: The average cost of raising a child is over $310,000, according to the Brookings Institution. A death benefit can help with financially supporting your children’s basic expenses or tuition costs.Dependents: You should also consider continued care for elderly parents or family members when calculating the coverage amount.Income replacement: A general rule is to buy a policy that is between 5 and 10 times your annual income.Funeral expenses: Accounting for the end of your life will save your loved ones from scrambling to cover these costs.
In addition to the amount of coverage, you’ll also need to choose the type of life insurance policy. Term life insurance policies are generally much more affordable than permanent life insurance policies, but there are pros and cons to both.
Is a life insurance policy considered a marital asset?
While life insurance policies are not assets, their cash value may be considered an asset. Term life insurance policies have no cash value and are generally not treated as marital assets. On the other hand, permanent life insurance policies with cash values are typically considered joint assets.
Why consider Haven Life as your life insurance provider
Life insurance doesn’t have to be complicated.
At Haven Life, we offer an easy way to buy high-quality, affordable term life insurance online. Start by getting a free online life insurance quote today, and apply for a policy that fits your needs.
Our editorial policy
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
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Our disclosures
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus
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