Life Insurance and Divorce

Life insurance. It's almost always a question. And, it's often a difficult topic to think about. It's a very personal choice. There are a variety of questions and what-if's to consider. As with any significant purchase I like to ask myself “why do you need this and is it worth "the price"?

For Life insurance the question I ask myself, is what happens if a) I have it and b) if I don't have it. The answer often depends upon your stage of your life.

For those with young children in the home life insurance might be a tool which will allow the surviving parent to provide stability and peace of mind during an unimaginable and tumultuous time. It might mean having funds readily available for the house payment, money for extra child care, or the ability to pay outsiders for tasks the other spouse or parent used to do. If your children are teens or college age, a life insurance check might provide funds for education, transportation, or the many other expenses related to launching into adulthood.

Remember, spousal support and/or child support payments typically end upon the death of the ex-spouse.

Perhaps, when life brings you further down the path you may decide life insurance is something you no longer need. You've accumulated assets that can be called upon when needed, your home is paid off, your income is higher and/or provides an extra cushion. Perhaps the children are "launched" and making their own way in the world. On the other hand, perhaps, for you and your family, the extra security is worth the cost and allows you to sleep better at night.

Below are a few questions you might ask yourself or discuss with your trusted advisors and your financial and legal team.

What will my my children (and others in my care) need in order to continue living their current lifestyle?
Would your spouse or ex-spouse need any assistance taking care of the children's needs? If so, who would be the beneficiary?
Is my estate (assets less debts) sufficient for the beneficiaries I have assigned, or, would additional life insurance be important as a legacy for my loved ones?
Will my survivors have access to funds or short term credit that will get them through the first weeks, months, or years until the monies from my estate are available? If not, how much cashflow will be needed right away? Note: There are a variety of ways to insure immediate cash, but most need to be planned in advance.
Does the annual cost of the insurance feel like a good value? What are my alternatives?
Can I qualify for life insurance and if so what type is best for my situation?
Do I believe it's important to pay off the house? Do I think my children or heirs will sell the home anyway? Will they prefer the equity/cash from the home or do they want (and can they afford) to keep the home? If I have school age children, will they move full-time with the other parent? What does my will say about who and where the children would go? How does the house play into that?
Do I have a family member or adult child I trust to the point I would put them as a co-owner, beneficiary or transfer-upon-death, on a bank or investment account which holds sufficient funds to cover those immediate needs?
What is cost of smaller term policy and would that be more or less attractive to me?
Would my ex-spouse (or whomever will be the child's guardian) need assistance taking care of them financially? Who would be named beneficiary? Would a trust be set up?
is it important to me that I leave a legacy to my heirs or a favorite charity?

You and your family have unique needs, and the list above provides a few things to consider.

This very personal decision has no “right” or “wrong” answer. It really depends on what makes you feel secure, what you can afford, and if this is the right tool to solve a particular potential “pain point” for you.

Please make it a point to discuss with your financial professional, your own estate planning professional(s), and your divorce team so it can be negotiated as part of the divorce negotiations, if necessary.