What Happens to Life Insurance in a Divorce?

 Posted on July 24, 2023 in Divorce

You and your spouse likely had one or more life insurance policies during the course of your marriage. The need for life insurance does not end just because you no longer have a spouse. Divorce should cause you to reconsider your insurance situation and potentially make changes. A divorce attorney with experience in gray divorces can advise you on how life insurance is treated in a divorce. 

Cash Life Insurance May Be Divided

If you had a permanent life insurance policy, it has built up a cash value over time. This cash is akin to equity, and it grows over time based on your investment performance. Even if you terminated the policy, you would still be left with money. The cash value of the policy is considered a marital asset. You may agree to terminate coverage and divide the cash value, after accounting for a surrender policy. 

Term Life Insurance May Have Different Treatment

Term life insurance is treated as separate property, and it is not subject to division. The benefit from term life insurance only comes at some point after the marriage ends. Therefore, each spouse would likely keep their own term life insurance policy after the divorce. There is no equity in a term life insurance policy to divide. 

It may serve you well to continue with your current term policy, especially if your health condition has changed since you last renewed your policy. If you need to get a new policy, you may need to pay far more, both based on your age and your current health condition. 

You May Need to Continue Life Insurance

If you have the obligation to make alimony payments after the divorce, you may need to continue life insurance coverage. You may need an additional policy and make your ex-spouse the beneficiary. The marital separation agreement or court order may require you to maintain a certain amount of insurance because your ex-spouse is relying on you financially to an extent. 

Re-Evaluate Your Life Insurance Needs After the Divorce

Your life insurance coverage should reflect your current needs. After you have had a change in life circumstances, your needs may change. You need to evaluate your new needs and adjust your coverage accordingly. Never be without coverage at any point in time because there are still people who may be relying on you. Life insurance is your way to take care of your loved ones when you are no longer here. 

Contact a Novi Divorce Attorney Today

The Novi divorce lawyers at Elkouri Heath, PLC can help you with the special considerations involved in a gray divorce. There are additional factors that come into play. You can call us today at 248-344-9700 to schedule your free initial consultation.

Source:

https://www.policygenius.com/life-insurance/life-insurance-and-divorce/