divorce

Life insurance after divorce

Almost always. Update beneficiaries on every policy, check whether the decree requires you to maintain coverage for child support or alimony, and re-size coverage for a single-parent household. If your ex-spouse is required to carry insurance for the children, ask to be the owner or to receive proof of coverage each year.

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At a glance

What it is: Life insurance for a set period: 10, 15, 20, 25 or 30 years
Who it is for: People with a mortgage, children, or income others depend on
Price: Usually the lowest cost per dollar of coverage while the term runs
After the term: Coverage ends, renews at a much higher price, or converts to permanent coverage if the policy allows

Life insurance and divorce decrees

Divorce decrees frequently require one parent to maintain life insurance for the benefit of the children or to secure support payments. The decree sets the amount and term; the policy owner should update beneficiaries to match. A former spouse named as beneficiary before the divorce may or may not be automatically revoked depending on state law, so the beneficiary form itself must be changed.

The number that matters for new parents

Add the years of income you want replaced until the youngest child is independent, plus the mortgage and education. Subtract what you have. For many young families the result is several hundred thousand dollars, and a 20- or 30-year term policy covers it for a manageable monthly premium while the children are young.

Choosing an amount and a term

A common approach is to add up what you want covered (remaining mortgage, years of income to replace, education, final costs), subtract what you already have (savings, employer coverage, Social Security survivor benefits where they apply), and match the term to the longest obligation. Someone with a 27-year mortgage and a toddler often looks at 30 years; someone five years from paying off the house may look at 10.

After the decree

Change beneficiariesOn individual, group and retirement-plan policies. State revocation laws vary; the form is what counts.
Read the decree’s insurance clauseAmount, term, who is owner and beneficiary, and proof requirements.
Re-size your own coverageA single parent usually needs more, not less.
Consider owning the policy on your exThe owner controls beneficiaries and receives lapse notices.

Common questions

Can my ex-spouse still collect if I forgot to change the beneficiary?

In many states a divorce automatically revokes a former spouse as beneficiary on some policies, but not all, and federal law overrides state law for certain employer plans. Do not rely on it; file a new beneficiary form.

What happens when my term life insurance ends?

Coverage stops, or renews year to year at a much higher price if the policy has a renewal provision. Some policies let you convert to permanent coverage before a deadline without a new medical review.

Is a medical exam required for term life?

Not always. Many carriers offer accelerated underwriting that uses your application answers, prescription history and other records instead of an exam, often up to a set coverage amount. Health questions still apply.

Is the death benefit taxable?

Life insurance proceeds paid because of the insured’s death are generally not included in the beneficiary’s gross income for federal tax purposes. Interest earned on proceeds left with the insurer can be taxable. A tax professional can address your situation.

Is AskLily an insurance company?

No. AskLily is an education and referral service. Lily, our automated assistant, helps you understand options and, when you ask, connects you with a licensed independent insurance professional. AskLily does not sell, bind or underwrite coverage.

Does it cost anything to talk to Lily or a licensed professional?

No. There is no fee to use AskLily, ask Lily questions, or speak with a licensed professional we refer you to. If you decide to apply for a policy, you pay premiums to the insurance company that issues it.

Talk it through with Lily

Ask what this means for your situation. When you want numbers or an application, Lily connects you with a licensed independent professional.