Life Insurance and Divorce

Life insurance. It’s almost always a question. Especially for my clients who are in their 40’s, 50’s or 60’s.

It’s a good question. It’s often a difficult topic to think about. And, it’s a very personal choice. As an analyst, I always ask “why do you need “XYZ” and is it worth “$ABC”?

For Life insurance the question is “why do I need (or want) life insurance?”. The answer likely differs in the various stages of your life and based on your “money personality”.

If your kids are young, life insurance might 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. They cooked but now you eat out, household maintenance is now allocated to the local handyman, snow removeal is hired out – whatever it might be that keeps things afloat for the time it takes to get back on track.

If your children are teens or college age, that life insurance check could provide funding for their education, transportation, and the many other expenses related to launching them into adulthood.

For those relying on child support and spousal support payments, these payments most commonly end upon the death of the paying spouse/parent. Life insurance might be an option and provide a replacement source of household funds.

Later, when you’re further down life’s path you may decide life insurance is something you no longer need. You’ve accumulated other assets that can be called upon, your home is paid off, your income is higher and provides that 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 disuss with your trusted advisors and financial and legal team.

What will my my children (and others in my care) need to continue living their “normal” lifestyle?
Would your spouse or ex-spouse need any assistance taking care of the children’s needs? If so, who would be the beneficiary?
What is the value of my total assets and does this seem sufficient or, would additional life insurance benefits be important? Will my survivors have access to funds or short term credit that will get them through the first weeks or months until the monies from my estate are available or, will some amount of cash be needed right away? There are a variety of ways to insure availability of cash, each with pro’s and con’s, so definitely personal choice and preferences are important.
Does the annual cost of the insurance feel like a good value for what I need or am getting? What are my alternatives? What if I don’t qualify?
Do I believe I have 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? Note that your “mortgage” obligation is with you, and then your estate. Can life
Do I have a family member or adult child I trust to the point I would put them as a co-owner or beneficiary on a bank or investment account funded sufficiently to cover those immediate needs?
What about accounts where I can designate “transfer upon death” and how does that play into the decision?
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 any assistance taking care of them financially? Who would be named beneficiary the child, the guardian, a trust? Remember that any spousal support obligation you receive or you pay ends with your death.
is it important to me that I leave my heirs anything, and if so, does what I have seem sufficient, or does additional life insurance feel better and is that important to me?

You and your family have unique needs, hopefully this gives you some things to think about.

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

Please make it a point to discuss with your financial professional(s) and your legal and estate planning professional(s) during the divorce and also soon after to make sure the details are all tied up and as you designed them as you move into creating your best post-divorce life.