Major life changes like divorce are never fun, they suck. If purchasing life Insurance for a divorce decree is in bold on your shity list, your in the right place. This guide, life insurance for divorce decree, explains a few of the aspect and tips that you will want to understand before you check it off your list.
The Right Life Insurance + Divorce Decree = NEXT
At the end of the day, I hope that you are empowered to move on in the right direction. Purchasing life insurance for a divorce decree sucks. You are best to review our 7 tips on Life Insurance for Child Support after you finish here. To get to a position of NEXT in your divorce, lets dig deeper into a position of confidence.
Primary Goal of Life insurance for Divorce Decree
In purchasing life insurance, you are protecting your ability to provide continued support in the event of your death. It places you in a position of confidence in marriage and divorce. Life insurance is an easy solution if used correctly and kept in force for both Divorce Decree and Child Support requirements. Nonetheless, your primary goal is to satisfy the courts while meeting your obligation per the decree. The last thing you want is the courts on your back and taking away your valuable time and money.
Custodial vs Noncustodial
As the custodial parent you want to make sure that child support payment continue in the event of your ex-spouse death. This may be true for alimony payments.
As the noncustodial parent, you also want what is best for your children and their well being continued in the event of your death. Equally, you want to know what options are available and negotiation tools that may favor your possition.
Tips for the Custodial Parent
Having full custody gives you full responsibility of your children and may include child support payments. Should your ex-spouse die, you want to make sure there are enough resources available to protect their well being. This will likely result as you being listed as the primary beneficiary on a life insurance policy for divorce decree.
Proof of beneficiary
As part of the divorce decree, you will want make sure how proof of beneficiary is communicated and how often. Your ex-spouse will likely be the owner of the policy and will need to communicate annually, showing proof that you are listed as beneficiary.
Life insurance for child support
As written in a previous post, purchasing life insurance for child support is important regardless of the requirements of a divorce decree. You have insurable interest and can purchase life insurance on your ex-spouse. This will protect you and your kids and ensure that support is provided regardless of what the courts require. A term life policy is a low cost high value solution for most life insurance needs.
If there is a current policy in place, you will want to clarify if you are entitled to any cash value that has accumulated. While it is less confusing if current policies are defined in the decree or left at the owner’s discretion. You will definitely want to know your options and have clarity of all current policies.
Make sure the policy stays in force.
Some Divorce Decrees require the noncustodial parent to pay for a policy on the life insurance and name the custodial parent as primary beneficiary. As the custodial parent you will want proof that the policy is paid and current.
Ask for Ownership
If you are the owner, you can be in control. You will receive or request statements and be able to contact the insurance agency directly. This will allow you to ensure that you are indeed the beneficiary and that the policy stays paid and current. Your ex-spouse will be the Payor and meet their responsibility of the divorce decree.
Decare the timeline
The decree should also state the time period for the life insurance. This typically correlates with the timeline for child support. Nonetheless, the timeline of life insurance for divorce decree could be greater if alimony is involved. Make sure this is clearly defined.
Tips for the Noncustodial Parent
Despite not having full custody of your children, you will want to ensure their financial future and well being. As part of the life insurance for divorce decree, you will have certain mandated responsibilities. Make sure that these are clearly spelled out and that you fully understand your rights.
Any current policies could be included as part of the divorce agreement. It is easiest if you can negotiate current inforce policies be left out of the agreement. This can be more difficult if cash value has accumulated in the policy as it can be considered an asset. Nonetheless, if the insurance is strictly for Child Support the timeline should be covered in a term policy.
Consider a ROP
If you are required to pay for life insurance for a specific time period a Return of Premium (ROP) could be favorable. If you are required to have a 20 year term policy, a ROP would return 100% of insurance premiums at the end of the policy period. Some sneaky agents will claim that this is a free insurance policy. This is not true, there is never a free lunch. Clearly, they do not understand Time Value of Money. A good agent will help you compare the value of ROP over the savings of a lower cost term.
Life Insurance for Divorce Decree: Ownership
As the noncustodial parent, if you maintain ownership of the policy you can make changes to the policy. If the divorce decree states that you (payor) must pay for a life insurance policy on your life. Your ex-spouse will be listed as beneficiary in most cases unless there is a trust. Regarding ownership of a life insurance policy for divorce decree, you have two options. You can keep ownership or list your ex-spouse as owner.
If you want all the control of the life insurance policy required by divorce decree, you must maintain ownership. This control will allow you to make changes to the policy and provide you with conversion options after your degree requirements are completed. You will likely have to prove that your ex-spouse is listed as beneficiary annually and that the proper coverage is still in force. This is most likely option taken by noncustodial parents.
Using Ownership as a negotiating tool
Giving up ownership on a court ordered life insurance for divorce decree policy may not be a terrible idea if term period is required. The bad news in giving up ownership you is that you are giving up control. Naturally, you will still be required to pay for the policy. The benefit to the ex-spouse is that she will have confidence that the policy has her as the named beneficiary without worry of change. Using this in negotiation might give you leverage elsewhere.
You may also request that after the term period is fulfilled that you be given the opportunity to redeem ownership of the policy. Having this opportunity could protect your future insurable interest as most term insurance policies have a conversion option to a permanent policy. Lastly, do not use an ROP if you are giving up ownership. You as the payor of the policy will not benefit and will end up paying more in insurance premiums.
As the owner of the policy, after you have fulfilled your life insurance for divorce decree requirements, you may wish to keep the policy inforce while removing your ex-spouse as beneficiary. You may also have the ongoing need for insurance. Most term policies have a guaranteed convertibility to a permanent policy. This will allow you to keep the policy for future needs deemed necessary by you.
Purchase Insurance on Your Ex-spouse
If shit hit the fan, you are not likely to be the beneficiary of your ex-spouse life insurance. Yet if they were to die, you would most likely gain full custody of your kids and have a need for her life insurance benefits. You could purchase life insurance on your ex-spouse as you have insurable interest to protect the children’s needs and yours.
Future insurance Needs
Use caution in you purchase additional policies during the divorce decree timeline. If you have a need for more insurance, consider having a significant others be the payor, beneficiary, and owners of the policy.
As the noncustodial parent, you do not want to confuse the need and purpose of new policies with that which is required life insurance for divorce decree. Make sure you do not cancel and replace any policy that is tied or obligated by decree to stay in force. Doing so will muddy the waters and make it confusing.
You may also want to review best life insurance options for children if you have young children. As a parent going through divorce, you are best to have a solid life insurance plan in place for you and your children.
Wonder What life Insurance Solution for your divorce decree?
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Jose, Hoser, Joe from the Show