Life insurance, more than most things you buy, relates to the circumstances of your life. You buy life insurance to protect your family from financial loss stemming from your death. You tie the amount of your life insurance to the money your family will need to provide an income, pay off debts, put children through college and cover financial commitments. But what happens to life insurance when youre about to dissolve your marriage? How do you deal fairly with a soon-to-be ex-spouse, yet still make sure you have coverage for the future? Is there a way to provide for adult children of a previous marriage without going broke -- especially if you have children through a second or third marriage? Here are a number of considerations you should be aware of: - Dont assume that your insurance agent or company knows about your circumstances. If you dont change your beneficiary, your former spouse may receive the proceeds of your policy upon your death. If the designation simply reads, husband of the insured or wife of the insured, and there is no new spouse, the secondary beneficiary receives the proceeds. - You may be able to transfer ownership rights of the policy as part of a property settlement or to ensure continuation of alimony payments. Your ex-spouse may not press as hard for more support or a greater slice of an ongoing pension if he or she remains the designated beneficiary on a permanent life insurance policy. Of course, you need to ensure that your policy remains a valuable asset by keeping up premium payments. However, transferring an existing cash value policy (as opposed to a term policy, may carry with it the burden of federal gift tax, unless you transfer the policy prior to divorce. Be sure to discuss this option prior to the finalization of your divorce. - Dont overlook the possibilities life insurance may provide for dealing fairly with children from your previous marriage. If youre paying alimony to your previous spouse and have a second family with your new spouse, adult children from your first marriage may sue your estate after youre gone if they arent dealt with at least as fairly as the children from your subsequent marriage(s). A permanent life insurance policy can be an immediate "estate replacer" to children from your first marriage -- it helps you replicate accumulated assets that you wish to pass on to the children of your first family -- but cant afford to without neglecting the needs of your new family. Essentially, you purchase a permanent life insurance policy on yourself and designate your adult children as beneficiaries. When you die, proceeds bypass the probate process and pass directly to your adult children. Your immediate spouse and any children from that marriage are left with your accumulated property and assets -- so youve provided for both families. If youre contemplating divorce, dont forget the options you may have with respect to your life insurance coverage. Divorce is tough enough -- dont overlook the flexibility and security this valuable asset can provide. |
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