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Life Insurance Issues in Divorce

My clients often ask me whether the life insurance policies are necessary after divorce is finalized. Below is an article, written by Rosemarie Moeller, CFP, the director of “Women in Transition”, a division of Eisner-Amper, LLC. I hope that my readers find it helpful.  

If you and your spouse are recently divorced or are planning to divorce, you probably have questions about your new and continuing needs for life insurances. Do you still need to have life insurance coverage? Will you need additional insurance to protect your support payments?

Protecting your alimony/child support payments:  The recipient of alimony and/or child support payments is advised to protect those payments by insuring the life of the support paying spouse.  Here are some options to accomplish that:

  1. Be named the beneficiary of your former spouse’s policy: The easiest option is to name the recipient spouse beneficiary of any existing policies on the support paying spouse’s life as part of the divorce settlement.  Please note: Being named beneficiary doesn’t give you any control over the policy. The former spouse still owns the policy and could take loans on the policy or fail to pay the premiums, allowing the policy to lapse, leaving an unsuspecting former spouse with little or no protection.
  2. Have existing life insurance policies transferred to you: Having the policy transferred or assigned to you can be a valuable alimony-protection tool. When you own the policy you control it: meaning that your former spouse can’t take loans or make any other changes to it. You can arrange that the former spouse continue to pay the premiums on the policy transferred to you. Therefore, if the premium is not paid on time, the insurance company notifies you as the owner. If you pay the premium, you have the peace of mind to know that they are being paid in a timely fashion.
  3. Purchase additional insurance on your former spouse: You can purchase a policy on your former spouse which will give you the control you need to ensure protection. However, this can be expensive if your former spouse is older or in poor health. One option to pay the premiums is to increase the alimony or child support payments as part of the divorce settlement. Regardless of who pays the premium your ex-spouse needs to cooperate with the physical examinations or underwriting required to issue a new policy.

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