Overlooked Financial Issues During Divorce- Term Life Insurance

Divorce is commonly seen as one of the most stressful experiences one will ever go through.  Along with all of that stress, you are also making financial decisions that will most likely affect the rest of your life and perhaps the lives of your children as well.  For that reason, it’s a good idea to get the advice of a Certified Divorce Financial Analyst™ or some other financial professional during your divorce process.

Handling of the Term Life Insurance

In a 2018 Insurance Barometer Study, by Life Happens and LIMRA, ONLY 59% of Americans have some form of Life Insurance.  That’s a sad statistic considering everyone could benefit from some form of Life Insurance, even if it’s Term Insurance.  “Term Insurance” is the kind of insurance that only last for a certain ‘term’ or period of time.  10-year term and 20-year term are some of the common terms that I see.

In some cases, a couple going through a divorce might already have a term policy that they purchased when the kids were born. 

Usually consisting of just enough insurance to get them through college if something were to happen to one of the parents, most likely the high-income earner.  Because term policies don’t have any cash value, I’ve seen them completely ignored during the divorce settlement and if they are addressed, the decree might say that the insured is ‘required’ to keep their spouse as the beneficiary.  However, a piece of paper that requires someone do something doesn’t actually keep them from doing it.  The high-income spouse might remarry down the road and five years from now find themselves in an insurance review with their new spouse where they find out the old spouse is still listed as the beneficiary.  Forgetting why that was the case, or that they are ‘required’ to leave it that way, they change the beneficiary, and nobody finds about it until policy holder passes away.

In a collaborative divorce, the spouses can request that the insurance company change the ownership of the policy to the beneficiary, thereby making the beneficiary the one in charge of who the beneficiary will actually be.  Something they will most likely never change.  The trick is that this request must be made while the parties are still married.

Keith Powell, Certified Financial Planner® and Certified Divorce Financial Analyst​​™​
www.austindivorceplanners.com kpowell@austindivorceplanners.com 512-963-6883

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