Life insurance and divorce FAQ
Life insurance and divorce
Getting life insurance during or after a divorce needs to be handled differently than a standard application for life insurance.
Here are the most common questions I get about getting life insurance during, or after, a divorce.
What type of life insurance is best to satisfy a divorce settlement?
In divorce cases where a new life insurance policy is part of the settlement, term life is the most common type of coverage purchased. It’s almost always the most affordable option and it’s designed to offer coverage for a certain amount of time.
Typically, when life insurance is court-ordered of the supporting spouse during a divorce, there’s a deadline attached to that requirement. Traditionally underwritten life insurance takes 4-8 weeks on average to go in force, that’s if all goes well. Besides a medical exam, prescription drug check, Medical Information Bureau verification, motor vehicle check, an Attending Physicians Statement (APS) is often requested. This comes typically from the primary care physician, but it can be requested of any healthcare provider that the applicant has seen for treatment.
Waiting times on an APS is by far the most common hold-up on getting a response to an insurance application. It’s not uncommon for a case manager (either internally at the broker level or from an insurance company) to have to request an APS multiple times before it’s finally delivered. It’s just not a priority in most medical offices. Occasionally, this process does happen quickly, but for the most part you’re waiting weeks for this document.
For that reason, I strongly recommend no-medical exam policies, provided the supporting spouse qualifies. These policies issue much faster than fully underwritten policies. Pricing is often competitive and many of companies I work with include living benefits in their non-med policies at no additional cost.
If it’s determined that non-med is not an option due to health, lifestyle or some other criteria, we will typically go with a fully underwritten term policy. In this case I will ask that the supporting spouse reach out to his/her doctor if an APS is ordered. Sometimes, the patient can expedite the process by calling their doctor’s office.
So far we’ve discussed term life, since it’s the most commonly used in divorce settlements. That being said, permanent coverage, such as Universal Life and Whole Life, are completely acceptable to satisfy most divorce settlements. Permanent coverage is usually substantially more expensive, but has it’s benefits. Primarily: a lifetime death benefit, potential cash value accumulation, cash-out loan options, to name a few.
Keep in mind that once the support period has been fulfilled, the owner of the life insurance can then make changes to the policy. The main one being a change of beneficiaries. For that reason alone, people do sometimes choose to go with permanent coverage. It’s ultimately, your preference of course.
How much coverage should be purchased?
The amount of death benefit, or face value, of the policy is typically dictated either by the court-order or the mutual agreement of the parties. It usually ends up being an amount equal to child support owed to the custodial parent until the child or children reach college age. It can also factor in a certain number of years of alimony support. Each situation is unique, which makes it difficult to gauge how much coverage will be required.
It’s entirely up to the individual if they wish to purchase that amount or more. In many cases, it makes financial sense to have more coverage than what was ordered or negotiated. Again, that’s entirely a personal decision, but I always encourage my clients to think ahead about what they may need down the road.
Should the duration of coverage match the length of support?
Unless ordered or negotiated otherwise, the length of coverage [if term life is used] should be at least as long at the supporting spouse’s obligation to pay alimony and/or child support. Again, there’s no reason why someone couldn’t elect to buy longer coverage if it suits their overall requirements. This is especially common when the supported spouse or custodial parent buys the policy.
Who should be the owner of the policy?
Again, this may be dictated by the court, but if at all possible the beneficiary of the life insurance’s death benefit should negotiate to be the owner of the policy. By default, the beneficiary is almost always going to be the spouse receiving alimony and/or child support. This adds a layer of protection since only the owner of the policy can make changes to it, such as changing beneficiaries or even transferring ownership. I prefer this strategy over designating an irrevocable beneficiary, since it gives the most protection and flexibility in the long run. As the owner of the policy, you may wish to make your child/children beneficiary at some point in the future.
Who should be the payor of the policy?
This should be another point of negotiation, in my opinion. Should the supporting spouse, who’s obligated to pay alimony and/or child support, be the payor of the policy premiums? What if they stop making payments and the policy lapses (ie. terminates)? If the beneficiary (the supported spouse) is also the owner, at least they would receive a notice of the potential lapse.
Going one step beyond being the owner of the policy, being both the owner and payor gives the supported spouse ultimate control on this protection. The cost of the policy premiums could be negotiated into the alimony or child support, thus giving the supported spouse the funds to make sure it gets paid.
* All this being said, I’m not an attorney or mediator and these are simply my thoughts on the matter. I strongly advise anyone going through a divorce to discuss the specifics with their attorney or investigate further to determine which arrangements will best suit their situation. *
What if the spouse that requires insurance is unhealthy?
This can be tricky. What if the supporting spouse is court-ordered to obtain life insurance, but is in poor health? At best it means they will be paying higher premiums because of their health. Most likely, the court-order did not specify a cost ceiling, after which the spouse is off the hook. The cost of coverage is irrelevant to the court, only that the coverage be purchased to comply with the divorce settlement.
But what if the spouse’s health problems are significant enough to render them uninsurable? In other words, no insurance company will extend coverage based on health. This is difficult because anyone applying for life insurance is at the mercy of the underwriting process. Certain health conditions, or even criminal records, can make it nearly impossible to get insured.
If declined by the life insurance company we apply with, my team and I will review the case and ‘shop’ it with our other carriers. We work with over 25 of the top-rated companies in the market. This usually allows us to pivot to another carrier when required.
Depending on the age of the spouse, a guaranteed issue policy may be the only option. Since GI policies are only available for lower coverage amounts ($40,000 is typically the maximum offered), it may be necessary to stack multiple policies.
If it is determined that the court-ordered or agreed upon amount of life insurance coverage cannot be obtained, I will prepare a letter to the court or mediator, explaining our findings, with supporting documentation from the insurance company. I will also present any available alternatives for consideration (typically one or more GI policies).
What if the insurance is later canceled by the supporting spouse?
I’ve heard many stories of this happening. Once the divorce is finalized, the supporting spouse stops paying for their insurance policy (letting it lapse) or outright cancels it. The only recourse at that point is for the other spouse to take it back to court and ask for enforcement. That is if that person finds out about it. If the policy is owned & paid for by the supporting spouse, the other may never know that it’s no longer in force. Unless something were to happen and the supporting spouse dies, of course.
A better option, again in my opinion, is to negotiate being the owner & payor if you’re the supported spouse and adding the premium amount to your alimony or child support. Given the option, including it into the child support is usually a safer bet.
* Again, these are my opinions based on experience. I’m not an attorney and I strongly suggest you discuss this with yours or with a trusted advisor. *
What if life insurance wasn’t part of my divorce settlement?
If obtaining a new life insurance policy wasn’t part of your divorce, you can still get coverage to protect yourself in the event that something happens to your ex. If you have kids and are the custodial parent it makes sense to want to protect any child support, alimony, pension, or other financial benefit that you receive from your ex.
Ultimately, you will need your ex’s cooperation in the process. You cannot purchase insurance on someone else’s life without their consent. He/she will need to sign off on the application and, if a fully underwritten policy, take a medical exam.
My ultimate goal is get you the required coverage to satisfy the terms of your divorce, as quickly as possible.
So contact me today to discuss your options.
I know firsthand that going through a divorce can be an extremely stressful time for everyone involved, both emotionally and financially.
This is why I specialize in helping people secure life insurance during this difficult transition.
Whether life insurance is required because of a court order, or agreed to in mediation, I can help.
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