Divorce can be a difficult and emotional process, and it's important to consider all aspects of your financial situation during this time. One area that often gets overlooked is life insurance. In this article, we'll explore what you need to know about life insurance and divorce.
Life insurance is a contract between an individual and an insurance company. The individual pays premiums to the insurance company, and in exchange, the insurance company pays a death benefit to the individual's beneficiaries upon their death. Life insurance can provide financial support to loved ones in the event of the policyholder's death.
Life insurance can play a role in divorce in a few different ways. First, if one spouse is paying alimony or child support, they may be required to maintain a life insurance policy to ensure that those payments continue in the event of their death. This is often referred to as "life insurance as security."
Second, life insurance can be used as a way to equalize the division of assets in a divorce settlement. For example, if one spouse is awarded a larger share of the marital assets, the other spouse may be awarded a life insurance policy with a death benefit equal to the difference in value.
There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance provides coverage for a specific period of time, such as 10, 20, or 30 years. If the policyholder dies during the term, the death benefit is paid out to the beneficiaries. If the policyholder outlives the term, the policy expires and no death benefit is paid.
Permanent life insurance provides coverage for the policyholder's entire life, as long as premiums are paid. Permanent life insurance policies also have a cash value component that grows over time and can be borrowed against or used to pay premiums.
When choosing a life insurance policy during divorce, there are a few key factors to consider:
Life insurance can be an important consideration during divorce, particularly if one spouse is paying alimony or child support. It's important to carefully consider your options and choose a policy that meets your needs and budget. As always, it's a good idea to consult with a qualified attorney or financial advisor to ensure that you are making informed decisions.