Life Insurance as Part of the Divorce Settlement
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Life insurance can provide benefit and flexibility that can be great match for a situation where life insurance is required as part of the divorce settlement.
In divorces that include provisions for alimony or child support, the court order will often require the supporting spouse to carry a life insurance policy to ensure that the settlement will be paid if the supporting spouse dies. If insurance is required, the term of the coverage will need to be determined, which could be a set number of years up to the life of the insured. If the court does not order life insurance, it may be in the best interest of the non- supporting spouse to take out a policy on the life of the supporting spouse to ensure future alimony or child support payments. Often, individuals have to make the difficult choice between a term policy that may not last as long as they need it to, and a permanent policy that will last longer but cost more than they can afford.
Life insurance is one solution to this problem because it has multiple features that work well when there is an obligation for a long period of time. It allows for multi-purpose use of the policy after the required term of years is extinguished.
The policy can be over funded allowing the owner to gain access to the policy after the payment need is completed. Children grow up and spouses often remarry, extinguishing the need for the coverage. At that time, the owner can re-purpose the policy to provide supplemental retirement income and a death benefit for the children from the prior marriage. If the insured is diagnosed with a serious illness, they could choose to take a full or partial acceleration of their death benefit through the Accelerated Benefit Riders 1 for critical, chronic and terminal illness. With the benefits and flexibility of permanent insurance and the ability to re-purpose the policy if the insured’s situation changes, this policy can be a match for individuals going through a divorce settlement.
