Divorce and Life Insurance
Life Insurance and Divorce- How does it work?
Life insurance and divorce are two things people do not consider to be very exciting. Divorce by itself can be devastating. Life insurance is a purchase most people put off for a very long time. Divorce often leaves families in financial struggles and emotional turmoil. Unfortunately, purchasing life insurance often occurs after experiencing a life-changing situation. This paints a picture of the dangers of not having life insurance at all.
Then, you have a completely different circumstance. One that goes together because they have too. Life insurance and divorce often go with each other through a divorce decree. Often, you do not even have a choice in the matter. A judge can order one or both spouses to get life insurance through divorce proceedings. Divorce brings in many stressful situations to one’s life. Good Life Protection aims to help make the life insurance part of the divorce a little more stress-free.
What’s the Most Common Form of Life Insurance During Divorce?
Term Life Insurance is by far the leader of new active in force life insurance policies taken out by individuals such as yourself. The biggest reason for this is the cost. Depending on lifestyle habits and overall health, term life insurance can be very cheap and affordable. During a divorce, money may be very tight. You most likely have other obligations to take care of. You may even be trying to handle debt and credit accounts to avoid bankruptcy. This depending on the financial severity of the divorce. Term life insurance is typically the answer to help offset the cost. If you are obligated to get life insurance due to a divorce decree, term life insurance is most likely the best fit.
Several other factors will determine what your rates would come out to:
- Overall Health
- Do you work a hazardous job?
- Do you use Nicotine products?
- How much coverage do you need?
The factors listed are all driving forces behind what you will pay for your life insurance. It is important to speak to an agent with access and resources to find a carrier that fits your specific needs. With all the stresses that divorce can bring, do not let purchasing life insurance be one of those stresses. Good Life Protection wants it to be as seamless as possible for you.
What options and duration to Term Policies offer?
Term life insurance during divorce makes sense for a wide variety of reasons. When you decide to buy term life insurance, you need to know what durations are available to you. Term life insurance typically runs in increments of five years. The shortest policy you can lock up is what’s known as an “ART”. ART stands for “Annual Renewable Term”. These policies are usually not in your best interest in most circumstances. You may think it is the best option because year one it will be the cheapest. By year two, it will not be as cheap anymore. These policies hold no obligation to keep your premium “locked” at a certain level premium. They will continue to rise over the years eventually costing you more than a level premium term. Level Premium terms often come with the following options:
- 10 Year Level Premium
- 15 Year Level Premium
- 20 Year Level Premium
- 25 Year Level Premium
- 30 Year Level Premium
Consider what you really need.
A divorce decree will have different stipulations or requirements on a case by case evaluation. Often, you are required to carry life insurance that will supplement or cover alimony and child support obligations in the event of your death. Once you pass away, most legal systems do not believe you are off the hook to provide for your family. In many circumstances, this is the primary reason you are being asked to get life insurance in the first place.
If this is the case, you already know the coverage amount you need. You need to find the best rates and fastest way to get the coverage. Work with an independent broker. They can ensure you get the most comprehensive budget-friendly life insurance policy. If you are not quite sure how much coverage to get, try performing the following on your own or with an independent life insurance agent.
How much debt do you currently have?
When it comes to protecting your family, life insurance is something you must carry. Divorcing or not. How much to get is a completely different challenge one can face. Many people do not know how to arrive at the correct number. The first thing to keep in mind is that it does not have to be perfect.
First, start by adding up your debts. This is the least amount of life insurance you should have in place. It should not be your family’s responsibility to repay the debts you built together. Especially if you were post or prior divorce, the main income of the family.
Once you have arrived at how much your debts equal, take a look at a 5-10-15 and 20-year time horizon. I advise you to go to a minimum of a 20-year time horizon because of the possible ages your dependents may be. If they are three years or younger, this length of a time horizon should suffice to get them past age of majority and most likely finishing up college. Ask yourself questions such as….
- Are my debts increasing or decreasing yearly.
- Are my nest egg and savings growing or being depleted?
- How much money would my family really need to push through my passing?
- Am I paying for my child’s education whether I am alive or have passed away?
Do not forget to look at your current and future income.
After you begin putting pencil to paper on some of the questions above, you should be looking at your income.
- How much net income to bring in each year?
- How much money is your family post or pre-divorce used to having access too?
- Will inflation hurt your families standard of living?
- How much will this income rise?
A good rule of thumb is to take your current income and perform at least a 10x multiplier of that income. Then secure life insurance coverage for a minimum of that face amount.
What are your options on what form of life insurance to purchase?
You have three different options on how to go about purchasing your life insurance. The first question to ask yourself is,
- How much time do you have?
- How soon are you due to prove you have coverage in force at an upcoming court date?
- If you are on a limited time constraint, consider simplified issue life insurance or no exam life insurance.
These policies often issue very quickly. Sometimes within one hour depending on the life insurance carrier. You will have to answer almost all medical questions with your agent. Also, you will have to submit formal payment with your application. Your bank account will not be drafted until your policy has been approved. These policies also often come with a slightly higher price tag.
Some of the biggest benefits of simplified issue or no exam life insurance are:
- No blood draws or intimidating medical exams
- Very fast processing and issue process
- Instant to 48-hour approval times
Some of the downside to these policies?
- Higher premiums most of the time
- Can be not as advantaged for approvals depending on the health situation
In many instances, clients who call and need coverage quickly due to a divorce decree, often take this approach. I often recommend that if you want to keep your life insurance as budget-friendly, you can always revisit your policy in a year. You can also opt to perform full underwriting to lower your rates. This option at least takes care of the issue at hand and places coverage in force before your upcoming court date.
Depending on how much time you have available, you can also opt for a fully underwritten life insurance policy. These have processing times that can take as long as 8 weeks. They are a bit more invasive, but they offer the lowest premiums. You always must place yourself in the shoes of the life insurance company. If you want the lowest price possible, you need to give them a reason to give it to you. No better reason exists than proving your good health and safe lifestyle habits.
Fully underwritten policies will require a medical exam. Also, may even order physician records known as an “APS” or Attending Physician Statement. A no exam policy may also order these records if they chose to. Always make sure to weigh your options with your agent. Choose the correct company that can solve the problem you currently face.
What about your current cash value policy?
Divorce laws can get pretty in depth and vary from state to state. Above we have discussed what you need to do if you need coverage due to a divorce decree.
- What about if you already have a life insurance policy and it has cash value?
- What are you supposed to do with it?
My first word of advice on this topic is to always be in communication with your legal team or lawyer throughout the process. However, we can touch briefly on it. Most people believe that you would need to surrender the policy and split the cash value. Is this right? Well, it depends. It is not always that simple.
It can often depend on if you live in a community property state or non-community property state. When you divorce, most assets purchased together or while married would be a 50/50 split. It does depend on how the premiums were paid as well. If the money was paid out of joint money or a collaborative effort, then most likely you are going to be splitting the cash value and surrendering the policy. The only way this would not hold true is if you had the agreement in place which stated the policy will remain in force and continue to accumulate value over the years.
Some states are going to look at if you funded the premiums on your own. If this is the case and it is easy to document and verify this information, you may be able to choose what you do with your whole life or universal life insurance policy. Again, speak to your attorney and do your due diligence to ensure you are taking the proper steps. Make sure you are abiding by all state laws pertaining to your divorce and situation.
In conclusion, divorce is something that no one wants to go through. Unfortunately, statistics are showing whether it is marriage number one, two, or three, the chance for divorce is growing to staggering rates. Some sources are showing divorce rates growing past the 50% mark. The chances life insurance will be something you have to put in place as part of a divorce decree may present itself at some point. When it does, we hope this article helps outlay your options and paths you can take to overcome and take care of the situation quickly and affordable.
Look at your timeline and current situation and choose the correct option accordingly that fits the situation. Working with an independent life insurance agent with a variety of carriers and policy types will prove to be your best option. Allow Good Life Protection to help place coverage quickly and in a manner that fits your needs best. Give us a call today.
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