You and your spouse may have life insurance policies to provide financial support to your family when you die. After a divorce, your financial obligations do not disappear, but you might need to change your policies.
Whether you have term or permanent life insurance impacts how you should manage your policy in a divorce.
Term life insurance
Term insurance is usually purchased for each individual and has no cash value. The courts do not consider an existing policy a marital asset, and it is not subject to division. If you choose to keep the policy, you may remove your spouse as the beneficiary and name a new one.
However, if you pay child support, share child-rearing responsibilities or provide spousal maintenance, your former spouse might want an additional policy on your life. With your cooperation, your ex can purchase a policy to ensure he or she is the beneficiary if you die.
Permanent life insurance
Another type of life insurance, called permanent life insurance, is an investment tool that accrues interest over time. These policies have a cash value, and money earned during the marriage is subject to equitable division. One way to manage this type of policy is to terminate it, split the profit and purchase a new plan after the divorce.
Life insurance is essential for individuals with dependants, but divorce may require changes. Knowing how divorce impacts different types of life insurance can make it easier for spouses to work together to divide assets or purchase new policies.