Is your EX secretly taking you off the life insurance policy?
Many divorces include a stipulation that either the supporting spouse or both spouses (if there’s shared custody) maintain a life insurance policy. This guarantees the children will still be provided for in the event of a death. But there are no guarantees that your EX is maintaining that life insurance policy. For all you know, you may already be out of luck!
For the purposes of divorce and life insurance we are going to focus on what you should know as a divorced parent with respect to term life insurance. 1) How can you purchase the best life insurance if you don’t currently have life insurance? 2) How you can make sure the policy or policies you already purchased will benefit your children?
Senior Managing Editor, Amy Danise of Insure.com sorts out the confusion and offers the best advise for divorced parents who really need term life insurance explained honestly and simply. See our top 5 Must knows!
1. Question: What is the best type of life insurance policy for divorced parents?
Answer: Most insurance experts agree term life insurance makes sense for divorced parents since it generally has a lower cost and is calculated to meet the temporary life insurance needs for a set period of time. For example, a term of 10, 20 or 30 years or perhaps until your children are grown.
2. Question: How is term life insurance set up?
A POLICY OWNER owns the policy and is responsible for the premium payments.
The INSURED PERSON is the one whose life is insured (should there be a death.) They don’t have to own the policy.
And, the BENEFICIARY is the one who will receive the money if the INSURED PERSON dies.
So to summarize, each year, a premium is paid by THE POLICY OWNER to cover the risk of death on THE INSURED PERSON. Term life insurance has no cash value to the BENEFICIARY unless the INSURED PERSON dies before the term life insurance expires. I.E. If you have a 20-year term life policy, and your insured person dies 10 years into the policy, then your beneficiary will collect the “death benefit” money.
3. Question: So how could an EX spouse secretly take me off his/her life insurance?
Answer: It is very easy for an EX spouse to set up a life insurance policy naming himself/herself as the POLICY OWNER and you as the beneficiary initially, but unless he/she provides evidence each year — you have absolutely no way of knowing 1) you’re still the beneficiary 2) if he/she is indeed paying for this policy.
4. Question: How can you prevent this from happening?
Answer: If your EX spouse owns a life insurance policy on his/her own life, and he/she is making the payments, and you’re the beneficiary — make sure you have current records documenting this.
If you’re in a situation where there’s an EX spouse who’s re-married that new spouse may not be willing to help you go through paper work to find your EX spouse’s life insurance policy once he/she is deceased. So make sure you have some notion of what’s going on with your term life insurance!
5. Question: What is the most common mistake with term life insurance?
Answer: The most common mistake is designating the children as beneficiaries, because they can’t receive life insurance money until they’re 18. Even if you’ve listed an adult as the “primary” beneficiary and the childern as the “secondary beneficiaries,” the trouble occurs if the “primary” beneficiary passes away while the kids are still underaged. So they will not have access to the money until they are 18. The only way to get around this is to set up a trust.
Additional Resources:
10 Ways to Save Money on Life Insurance
The 7 Deadly Sins of Life Insurance