Many agreements require only one spouse keep up coverage.
Divorce is can be a messy and complicated experience, particularly when it comes to division of assets and protecting the financial future of any children from the marriage, including the requirements for life insurance.
The former spouse with primary support of the children is generally required to maintain coverage.
Many divorce agreements will state that the parent who is paying alimony or child support will be required to take continue or to take out a term life insurance policy in order to protect the financial future of the children or the ex spouse in case he or she should die before financial obligations have been completed.
However, many people aren’t sure what to do if that life insurance is unavailable.
For example, many people find that they cannot reinstate a policy if it has been allowed to lapse. Moreover, many ex spouses wonder what to do if they find out that the person who should have the coverage, does not, and the divorce has already been finalized. At this point, property settlement cannot be renegotiated, so it could be that all opportunity has been lost. That is, unless the right precautions are taken.
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Avoid the most common life insurance mistakes during divorce:
• Underinsurance – make sure that your agreement stipulates the amount of life insurance that is purchased, and not just that a policy exists. Remember that the amount paid upon the death of the policyholder must be adequate to cover the financial requirements for the future of the children, or for the ex spouse. This amount should be enough to pay off a mortgage, put the children through their education and college, and cover credit card debt.
• Lapsed policy – when premiums are not paid by the policyholder, it will be cancelled and coverage will not continue. Should the ex need to reapply, he or she may no longer qualify or premiums could increase significantly. To avoid this, the beneficiary should make sure that the ex places the beneficiary’s name on the policy as the individual who must be notified if the premiums are not paid. This is a service available through most insurers as they would prefer not to have to cancel coverage when it could be continued.
• Changed beneficiary – some policyholders will attempt to change the beneficiary to a new wife or new family once he or she has moved on – regardless of whether or not it is allowed in the divorce agreement. The best way for a beneficiary to avoid this problem is to become the life insurance owner. That way, only the owner can make changes, though the insured must continue to pay the premiums.