Why you need to review your life insurance coverage after a divorce

Divorce is a major life change that may require a change in life insurance coverage.

Key points

• A spouse may no longer need to be a beneficiary after a divorce, but there may be limits as to when and how this can happen.
• Coverage needs can also change after a divorce, so it can be crucial to review the amount and nature of coverage.

Life insurance provides for and protects loved ones financially in the event of the premature death of the insured. Most people need life insurance and should take out a policy immediately if someone depends on them for income or services.

Buying life insurance isn’t just a make-it-and-forget-it decision. Policyholders may need to periodically review their coverage. While it’s sufficient in most cases to take stock of life insurance coverage once a year, anyone going through a divorce should review their coverage. Here’s why.

Why it is crucial to review your life insurance after a divorce

Most people purchase life insurance to protect their loved ones against financial loss. Often, a policyholder names their spouse as the primary beneficiary of their policy. This means that their spouse would receive the death benefit if the policyholder died. But after a divorce, an insured may not want their ex to receive a large payout if the insured dies. Some states have laws that revoke an ex’s beneficiary status after a divorce, but that’s not the case everywhere. Therefore, it is crucial to consider how this change affects who should receive the death benefit.

Even if the state has a beneficiary law, there could be other issues. For example, if a life insurance policy is intended to support minor children, those children cannot control money management until they are adults. While a married parent may assume that their spouse will use the death benefit to support the children, a divorced person may want a different adult to act as guardian of the assets and control how the money is spent until later. until children reach adulthood.

And since divorce could result in one partner becoming a single parent, it could affect the amount of life insurance needed to provide protection. This may not be as much of a concern if the parents share custody, each partner earns a similar income, and custody of the child reverts to the other parent in the event of an untimely death. But if one parent primarily supports the child, or if one parent has primary custody and the other parent is not part of the child’s life, much greater insurance coverage might be needed.

In some cases, changing beneficiaries can also be trickier than it looks. Depending on state law — and whether a judge presides over the division of assets or whether the couple negotiates independently — life insurance may be part of marital property to be divided. The judge may prohibit each partner from changing beneficiary, either while the divorce is pending, or possibly even after it has been pronounced, in order to ensure the maintenance of the children.

Take the time to review your life insurance in the event of a divorce

No one can predict when death will occur, and there’s no point in paying for a life insurance policy that doesn’t provide the proper protection for loved ones. While many divorcing people focus on other financial issues, adjusting life insurance by updating beneficiaries and, if necessary, changing the amount of coverage is crucial.