The end of a marriage is a very emotional time, so it is natural that you might not think about how divorce affects your life insurance right away. But sorting out your life insurance makes sure your beneficiaries stay protected during a time of such enormous change. Too often, people forget to address their coverage and leave their children financially vulnerable.
Divorce is as financially challenging as it is emotionally difficult. Financial advisors help you settle assets like life insurance fairly and peacefully. Like all the biggest changes in life — childbirth, a home purchase, or a major change in income — a divorce is a crucial time to check in with your life insurance needs.
Here are some ways your financial advisor can make negotiating assets easier for everyone and give everyone involved some peace of mind.
Updating Your Beneficiaries
Most often, people name their spouse as their primary beneficiary — not only because the law forbids life insurance payouts to any minor, but also because life insurance is there to protect those closest to you.
When spouses agree to separate, they most likely aren’t going to be the closest loved one to each other anymore, and even the most peaceful divorcees probably would not want their ex-spouse in charge of their death benefit. Your financial advisor and life insurance agent can change your beneficiary to someone better suited to handle that money going forward.
Dividing Your Cash Value
Term insurance is often a separate asset in divorce, but your cash value in a permanent policy may be joint. If your policy accumulates cash value — meaning your premiums grow with interest and can be withdrawn while the policy is active — that cash value is considered part of you and your spouse’s net worth.
In a peaceful divorce, this cash value will most likely be one of the assets you two divide evenly. Your financial adviser can help you sort this out among your other marital assets.
Protecting Your Children Financially
If you have children with your ex-spouse, your insurance decision going forward may get a little more complicated. When ending a marriage with children, you must consider factors like financial support and primary custody.
For example, the spouse who takes primary custody of the children will want to protect alimony and child support. In this case, keeping a policy with a death benefit that can at least replace these payments if they are no longer around makes sense until your children are grown.
If you take primary custody and you cannot rely on your ex-spouse financially, you should get life insurance coverage on yourself as a single parent to protect your children if the unthinkable happens. Your financial advisor can help you adjust your coverage to your children’s needs, and you can rest easy knowing that they will be financially secure no matter what.
Keep Your Coverage for Peace of Mind
With so many financial and emotional factors at play, a divorce can be an incredibly difficult time. Financial advisors and life insurance agents are objective voices that can help you protect your children and assets based on what you and your ex can afford. By not ignoring your financial future, you will be making the separation easier on everyone. Check in on your policy and you can rest easy knowing that everything will be all right in the long run.