Insurance Financial Terms
Insurance Financial Terms
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Divorce: Whole Life Insurance or Term Life Insurance?
For many divorcing couples, a term life insurance policy offers several advantages over a whole life insurance policy, and allows divorcing couples sensitive to fulfilling their financial obligations to each other and their children some affordable and sensible options. When the time comes to divide assets between divorcing couples, careful attention should be given during negotiations to provide for a life insurance policy, especially when there are dependent children involved. A variety of choices and decisions are to be made, determined by the divorcing couple’s respective new budgets, responsibilities to children and alimony obligations.
Dependents
Ultimately, the divorce decree should stipulate what the life insurance policy is intended for when it comes to providing for your dependents. Often the supporting spouse will be ordered to carry a life insurance policy to guarantee that children will be provided for in case of the supporting parent’s death. The length of time the supporting parent should carry the policy is generally until the dependent child’s age of majority, but it may be maintained for a longer period of time if the supporting parent chooses. Also, if the divorce decree is required to guarantee that alimony is paid, the policy will be maintained as long as the alimony payments are required. Also, regardless of which ex-spouse is the one who supplies the main financial support, either parent may wish to buy additional, or increase existing, life insurance to cover their dependent’s needs in the event of death.
Budget
Often in the case of divorce, reduced budgets are a sharp reality. Whole life insurance comparisons with term life insurance costs reveal that the latter may be a more affordable option. Divorcing couples should call around for life insurance quotes as a way to provide for their children in case of disaster, but most that have to consider new budget constraints will find that term life insurance premiums are generally less expensive than whole life insurance, and offer a specific time period of protection. Check the small print, as policies vary, but many term life insurance policies will cover dependent children until they reach the age of 21.
Ownership and Beneficiaries
Another important reason to designate who will own the life insurance policy during divorce negotiations is that the owner has the right to name the beneficiaries of the policy. Unless informed, the life insurance company will not know that a couple has divorced. If the policy owner does not remove the ex-spouse as beneficiary, in the event of the policy owner’s death, the former spouse will receive the proceeds of the policy.
A way to make sure the insurance policy is maintained per the divorce decree is to name the custodial parent the owner of the policy. Also, sometimes the policy owner may transfer ownership rights to the ex-spouse as part of the property settlement or to continue alimony payments. The divorce decree may also stipulate that if the life insurance policy of the supporting parent is allowed to lapse, or if the beneficiary designation deviates from the terms mandated by the divorce decree, in the event of the policy owner’s death then the ex-spouse and their dependents are entitled to part of the policy owner’s estate equal in value to the death benefit.
About the Author
Ryan Patterson is president of US Insurance Online based in Austin, TX. He graduated in 2000 from the University of Texas with a combined business and computer science degree, and started the company in May of 2005 with fellow entrepreneur Jim Waltrip. The recently re-launched site is designed to provide insurance shopping help and free insurance quotes. For assistance finding an appropriate term life insurance plan, visit www.USInsuranceOnline.com
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