“When discussing the financial aspects of a divorce or a break-up, insurance considerations should be a key component in ongoing and final decisions,” said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the I.I.I. “Dividing up property, changing homes, and altering life insurance policies must be discussed to make sure that both parties, as well as children or other dependents, are financially protected after the separation is completed.”
The I.I.I. suggests couples review the following coverages if they plan to separate or divorce:
3. Life Insurance
Couples buy life insurance for a variety of reasons, including covering existing and anticipated debts and financial obligations as well as providing an income and/or inheritance for dependents in the event of the death of one or both of the spouses or partners. When a couple divorces or splits up, these obligations may still exist.
Married couples often list each other as the primary beneficiary on life insurance policies, and should think carefully before making any changes during a separation. There may be good reasons to keep life insurance coverage on a former spouse. If one party is providing alimony and child support to the other, this may mean a loss of income to the surviving party if he or she dies. Some divorced couples may also consider keeping (or purchasing) life insurance on the spouse who has the primary responsibility for raising the children. If he or she dies, costly childcare will need to be arranged and financed. In such cases, the divorce decree should include the funds to pay the premiums on this life insurance policy.
If a divorced couple is purchasing life insurance solely to provide financial protection for their children, they may want to consider purchasing term coverage rather than whole life. Term is generally cheaper and it is designed to provide protection for a specific period of time—for example, until the children reach the age of 21. If there are no children involved, then changing the beneficiary on an existing life insurance policy may make sense. Beneficiary designations should also be reviewed on all retirement accounts, bank accounts, investment accounts and other assets, as well as on any group insurance through an employer.