How Life Insurance Plays Into a Divorce Settlement
Going through a divorce is a complicated, stressful time for those who are experiencing it. There are many things that need to be taken care of, and it seems like life insurance is one of the things that take the back seat. It is important to understand that life insurance plays a big role in the divorce settlement process.
Updating Your Life Insurance Policy During a Divorce
When life insurance is kept in order, you are protecting your financial interests and those of your family, especially if there are children involved. There are key parts of dealing with life insurance during a divorce. Here’s what you need to know.
Changing Your Beneficiary
The goal of having life insurance is to protect the people that are closest to you who depend on your income to get by. In the case of your death, the beneficiary will be financially protected by the money from your life insurance. If you had designated your spouse as a beneficiary, it is common for people to change that during a divorce process. First, you need to find out if your life insurance policy is revocable or irrevocable. You can contact your insurance agent to help you verify this, and if the policy is revocable, they can help you designate a new beneficiary.
Accounting for Cash Value
Your policy’s cash value represents an asset of your net worth. When a divorce happens, it is important to make sure that the cash value is divided fairly, just like you would do with any of your other assets.
In a common divorce situation where assets are divided evenly, this means you leave the marriage with half the cash value from the policy.
Keeping Child Support and Alimony Income Safe
Protecting alimony income and child support is particularly relevant for the spouse who will take primary custody of their children. To avoid a situation where you are no longer able to financially support your children in the case of the death of the noncustodial parent, it is ideal to have a life insurance policy on your ex-spouse. The policy’s benefit amount should be enough to replace your alimony income until the last child goes away to college. To make sure things stay in order with the policy, you can arrange to be the owner of it and coordinate with your ex-spouse to make the payments yourself.
When you face a divorce process, there’s so much to think about and so much that needs to get done. Life insurance can sometimes seem like yet another thing that you have to do, piling stress onto an already stressful situation. The purchase must be timely and the paperwork accurate but, although it may seem like a hassle, there are ways to make this process a lot easier for you. Our local Colorado agents can help you make this process as smooth as possible. Contact AAI Central Agency today and get your life insurance policy in check.