Divorce Means Change… And that Includes Your Life Insurance
Many couples have joint life insurance policies, but a divorce can change your life insurance plans. How life insurance works in a divorce is usually by splitting the policy or terminating it entirely after divorce. It is quite common for a divorce court to require one or both of the divorced individuals to take out a new life insurance policy as a way to continue financial support for the ex-spouse or children in the event of the person's death.
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UPDATED: Oct 28, 2020
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Divorce rates in the US have generally increased since 1970. Estimates put the current rate at somewhere between 40 – 50 percent, according to Wikipedia.com.
Divorce.com offers the following divorce facts:
- Marriages have declined 30% since 1970.
- Divorces have increased 40% since 1970.
- Women initiate divorce 65% of the time.
- Over 20% of first marriages end within 5 years.
While some of these numbers are debatable, most people would agree that a broken marriage is often devastating to a family. The physical, emotional and financial toll can be overwhelming to both adults and children.
How does life insurance work in a divorce? From a financial standpoint, divorce can impact the family’s life insurance situation. Depending on the circumstances surrounding the divorce and financial arrangements, there are several possible changes that may be needed.
Splitting a Policy
Many couples have joint life insurance policies, such as a First-To-Die or Second-To-Die policy. It may be appropriate to split the policy into two individual policies or terminate the policy entirely.
If the divorced couple has individual life insurance policies that are owned by one another, they may choose to change ownership of those policies to themselves or to another individual. The policy owner has the right to make changes to a policy, such as naming new beneficiaries or taking policy loans. Since the marriage has been dissolved, each person will most likely want to take that control back.
A divorced couple may want to change beneficiaries on their life insurance policies. They may no longer need or want their ex-spouse to be named as the policy beneficiary. Or they may remarry and wish to name their new spouse as beneficiary.
Getting a New Life Insurance Policy
It is quite common for a divorce court to require one or both of the divorced individuals to take out a new life insurance policy. This is often done as a way to continue financial support for the ex-spouse or children in the event of the person’s death. The ex-spouse, a trust or another individual can be named as the primary beneficiary of these policies.
Speaking of divorce, a recent survey of 30,000 Americans was conducted by AshleyMadison.com, a dating service which seeks to match people who are looking for affairs. The survey asked which celebrities people would most like to cheat on their spouse with. Below are the top responses.
- Jessica Alba – 15%
- Megan Fox – 14.4%
- Angelina Jolie – 10.5%
- Scarlett Johansson – 10.3%
- Johnny Depp – 15.7%
- George Clooney – 13.8%
- Hugh Jackman – 10.8%
- Barack Obama – 10.7%
Let’s hope the survey respondents have all taken care of their life insurance policies!
Sources: Divorce.com; Wikipedia; FoxNews.com