You may not need to split your life insurance in a divorce, but you may need to change your beneficiaries or buy a new policy to protect your loved ones.
Updated 7 min read
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During a divorce, you need to assess your marital assets and finances; if you have kids or a mortgage, life insurance is probably one of your many financial considerations.
Term life insurance won’t be treated like a financial asset during divorce proceedings, but the cash value of a permanent policy often is. You should review the beneficiaries named in any existing policies, and you may need to buy a new policy after the settlement is finalized — by court order or otherwise.
Each divorce and every divorced person’s life insurance needs will be different. Here’s what you need to know to manage the process with ease.
Some permanent life insurance policies have a cash value component that is considered a financial asset in divorce proceedings.
A divorce does not automatically invalidate or adjust your life insurance policy; you'll need to make changes yourself.
You may be court-ordered to purchase a life insurance policy to financially support your former spouse.
An asset is an investment that can generate some monetary benefit, such as stocks, bonds, mutual funds, or retirement accounts. While your life insurance policy itself is not an asset, the cash value of a permanent policy is an asset.
If you have a term life policy, you won’t have to worry about splitting the policy proceeds during the divorce. Term policies have no cash value and simply pay out a tax-free death benefit upon your passing, so they have no financial value while you’re alive.
If you will rely on your ex-spouse for any form of financial support in the future, it’s worth asking that they maintain a life insurance policy as part of your divorce agreement and name you as a beneficiary.
There are three main reasons to ask for life insurance to be included in a divorce agreement:
To protect alimony payments that you will receive
To protect child support payments that you will receive
To protect pension or retirement funds that you will receive
If you want to manage the policy, you can take a policy out on your former spouse, as long as they are willing to take a medical exam and sign the policy. Doing so means you won’t have to worry about any missed premium payments or changes to the policy without your knowledge.
Ultimately, a judge decides whether life insurance can be included in your divorce agreement. Talk to your lawyer about whether this is the right option for your financial needs and your divorce case.
Most couples who buy life insurance name their spouse as a primary beneficiary so that when they die, their partner has funds to pay off shared debts and raise any children. Depending on your circumstances, you may want to change that designation after your divorce.
Getting a divorce does not automatically invalidate or change your life insurance policy. If you or your former spouse want to make any adjustments to your respective life insurance policies, such as who receives your policy’s death benefit, you’ll need to do that through the life insurance company.
The process for changing the beneficiary of your policy varies for each insurer. It’s usually done online, over the phone, or by mailing in a paper form. Only the policyowner can change a policy’s beneficiaries.
However, if your ex-spouse was named an irrevocable beneficiary of your policy, you’ll need their consent to remove them and may need them to approve any other changes to your policy.
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If your ex-spouse took out a life insurance policy that insures you and pays out a death benefit to them in the event of your death, they can keep that policy even after your divorce. This is because only the policyholder can cancel or change a life insurance policy.
While you can ask your ex-spouse to change the beneficiary, it is entirely up to them to actually do this unless you receive ownership of the insurance policy and benefits as a part of your divorce settlement. Otherwise, your former spouse can make any adjustments to the policy without your permission.
If you own a life insurance policy that insures you and names your ex-spouse as the beneficiary, you can update the beneficiary on your policy to remove them. If you owe alimony or child support, however, a judge may order you to keep your ex as your beneficiary to ensure financial support continues when you’re gone.
After your divorce, you may want to switch your beneficiary from your ex-spouse to your children. Though this may seem like the right way to secure their financial protection, it is not recommended.
Anyone who has not reached the age of the majority, which is 18 in most states and 19 in Alabama and Nebraska, cannot legally accept the death benefit. If you die and your beneficiary is under the age of the majority, courts appoint a legal guardian to decide what to do with the funds, which can tie up the death benefit for years.
There are three ways to make sure that your children receive the death benefit in the manner (and time frame) that you would prefer:
Arrange for a custodian to control the funds: This should be someone you trust to act in the best interest of your children. You will need to specify in the policy if this is someone other than the surviving parent.
Set up a trust: A trust is a legal entity that designates how your assets go to your heirs. A trust can designate specific assets, beneficiaries, and a trustee to manage the trust.
Keep your ex-spouse as the beneficiary: If you and your ex-spouse are sharing custody and financial responsibility of your children, you might want to keep them as the beneficiary of your life insurance policy.
Alongside alimony payments, child support, or any other financial support, a judge may decree life insurance as a part of the spousal support in your divorce settlement. This is called court-ordered life insurance, and you usually have a deadline by which you need to secure a policy.
If the court orders you to buy life insurance as a part of your divorce proceedings, there are three things to keep in mind:
The life insurance application process can take five to six weeks to complete, unless you’re able to qualify for an accelerated underwriting policy. It could take even longer if the life insurance company needs supplemental information or your initial application is rejected.
Ideally, you should begin the life insurance application process at least six months in advance to account for any hiccups. If you don’t have six months, get started as early as possible to make sure you have a policy in place by the court's deadline.
The particulars of your court-ordered life insurance policy should be coordinated with your former spouse and respective lawyers, including:
How long the term should be
How much coverage to buy
Who will own the policy
Who will pay the premiums
There are two ways to set up the policy to ensure that your ex receives the benefit: either they can be the owner of the policy and the beneficiary, or you can be the owner of the policy and name them as an irrevocable beneficiary.
If you’re asked to provide proof of the policy for court, your broker or the life insurance company can give you a copy of your signed application. If you opted for temporary coverage when you applied, a receipt of payment should also work.
Again, divorce proceedings vary for each case. You’ll want to work with your lawyer while going through this process to make sure you are following the court’s guidelines.
Ready to shop for life insurance?
After your divorce, you may need to purchase a life insurance policy for the first time. There are a couple of steps you can take to ensure that you buy the right life insurance policy and coverage.
If you’re purchasing life insurance after a divorce, you want to make sure that you are purchasing enough coverage to protect the loved ones you would leave behind when you die. Policygenius advisors recommend purchasing a life insurance policy that is at least 10 to 15 times your income, but your coverage should account for all of your financial obligations, including:
Childcare: The cost of raising a child up to age 18 can end up being about $250,000. The death benefit can support their daily needs or education expenses.
Dependents: If you are responsible for an aging parent or family member, factor that continued care into your plans.
Income replacement: Whether you bring in an income or take care of services around the home, your economic contributions will need to be accounted for if you die.
End-of-life expenses: Funeral services can cost upwards of $10,000. Leaving behind funds for your family means they won’t have to withdraw from their savings or go into debt to cover those costs.
Check out the Policygenius calculator to get a better picture of how much life insurance you need.
Aside from the amount of life insurance coverage you purchase, your individual circumstance dictates what type of life insurance policy you will buy.
Term life policies are the best option for most people, but individuals with specific circumstances, such as a child with special needs or a high net-worth, may need a permanent life insurance policy.
Here are the key differences between a term life and a permanent life insurance policy.
|Features||Term life insurance||Permanent life insurance|
|Duration||10 to 30 years||Life|
|Cost||$25 to $30/month||5 to 15 times more than term|
|Guaranteed Death Benefit?||Yes||Yes|
|Guaranteed Cash Value?||No||Yes|
|How Cash Value Grows||N/A||Earns interest at a predetermined rate|
|Premiums||Level||Level or changes based on cash value|
Methodology: Based on policies offered by Policygenius in December 2021.
A Policygenius advisor can help you find the right type and amount of coverage.
Finalizing a divorce can be complex and lengthy, but life insurance should be a serious consideration in the process. Knowing whether your policy is a marital asset, who the beneficiaries are, and whether owning a policy should be part of your agreement will ensure your loved ones have financial support when you’re gone.
Term life insurance is generally treated as a separate property in divorce, since the financial assets of the policy — the death benefit — are not accessible while you’re alive. If you have a permanent policy with a cash value, it may be treated as a marital asset.
If your former spouse owns a policy on you or that benefits you, they control who receives the death benefit and whether the policy stays active. You may be able transfer the policy’s ownership or change the beneficiary as part of your divorce agreement.
If you and your ex-spouse will remain financially involved, either through alimony or child support, making life insurance part of your divorce agreement guarantees that you continue to receive financial support. Consult with your lawyer about what is best for your situation.