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Some divorce decrees include court ordered life insurance to guarantee that child support and/or alimony payments will continue if the paying spouse should die. Here are some things to keep in mind if you will be paying or receiving support after your divorce.

Court Ordered Life Insurance: When it makes sense and 5 tips to maximize the benefit

Getting a divorce can be a long process with a lot of decisions to be made. Oftentimes, couples negotiate such things as the different parenting schedules and division of assets. However, they often overlook the importance of life insurance. In this post, we will go over when court-ordered life insurance makes sense and 5 important things to consider.

Why courts may require life insurance after divorce

Having life insurance coverage when getting a divorce makes sense when one of the spouses is providing payments to the other spouse and/or child care.

Let us explain. In many divorce cases, the spouses either share child custody or one parent is the primary custodian, while the other has visitation and has to pay child support. It is also not uncommon for one of the spouses to have to pay alimony to the other.

Should the providing spouse pass away unexpectedly, the other spouse would not be receiving any further financial help. This would put her or him, as well as the kids, at a financial disadvantage. To prevent this, in many cases there is an order to get life insurance included in the divorce settlement.

There are many options when it comes to securing a life insurance policy in the event of a divorce. Here is what you need to be mindful of and steps you can take to ensure you maximize the benefit of the policy.

1. Make sure the divorce decree is as specific as possible

In other words, the divorce decree should list the amount of insurance the spouse needs to carry and the duration of the payments. In some instances, the divorce decree may not reference that information and then the life insurance company would need additional justification for the total amount of insurance.

For example, if the husband has to pay $600 per month in child support for the next 10 years and monthly alimony of $350 for the next 5 years, the calculations for coverage may look something like this:

$600 x 12 x 10= $72000 (total child support for the next 10 years) 

$350 x 12 x 5= $21,000 (total alimony for the next 5 years)

An underwriter would be able to financially justify and approve a $100,000 10 year plan.

Again, it is key to have life insurance listed as a requirement in your divorce decree. Many insurance underwriters will also require a copy of the divorce decree before approving coverage.

2. Make sure you are the owner and beneficiary of the policy

There are several different designation of roles in a life insurance policy:

  • The insured – the person whose life is being insured
  • The beneficiary – the person who is receiving the death benefit if the insured passes away
  • The owner – the person who is in charge of the policy. Often times the owner is the insured. However in a case of a divorce, it would make sense for the owner to be the spouse receiving the benefit. The owner is the only party that can make any policy changes. The last thing you want is to find out your ex-spouse had changed the beneficiaries or even canceled the life insurance policy once the divorce was final.
  • The payor – the person who will be paying for the life insurance policy. The payor may be either the owner of the policy or the insured.

3. The health of the spouse being insured

Life insurance companies will underwrite the court ordered life insurance, just like any other life insurance application. In other words, the person needs to qualify for the insurance based on their age, health, lifestyle, and medical history.

Please keep in mind that in some instances, traditional life insurance may not be available. If this is the case, the insurance agent will need to look at alternative options, such as accidental life insurance or a guaranteed issue plan. Both of these options have some limitations but could be the only insurance that person qualifies for.

4. Try to make the application process as easy as possible

It is not uncommon for spouses to dislike each other during a divorce. Therefore, they may be a bit resistant to getting a life insurance policy. I had a case where the husband said he might have cancer and he would definitely be bungee jumping in the next 2 months (even though he has never done anything like that). It was clear to me and the underwriting team that he was less than cooperative in applying for coverage.

Luckily, many life insurance companies are relying on 3rd party data more and more. Carriers are approving an increasing number of life insurance applications without a medical exam. In fact, there are options for coverage when the insured can self-complete the application from his or her smartphone and get an instant decision.

My recommendation is if possible, to secure the easiest policy to apply for. The last thing you want is a spouse that is reluctant to complete a medical exam or even purposely sabotage it.

5. Make sure the beneficiary information is complete

This is very important. Do not just simply list your children or ex-spouse. Please list the names of the beneficiaries, their date of birth, and their relationship to the insured. The best option would be to list yourself as a beneficiary vs. listing the children if any, especially if they are minors.

Author: Zhaneta Gechev has been in the insurance industry for over 15 years. She specializes in life insurance and has helped hundreds of families find the coverage they need. She has been featured in Forbes, Yahoo and has given interviews in several radio publications. If you need any further clarification on this article, you can reach out to Zhaneta Gechev at One Stop Life Insurance.

Related:Top 10 Life Insurance Issues in Divorce

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