Insurance Matters of Divorce

If you are in the process of divorce or separation and have begun discussions surrounding the money matters of divorce, especially child support and spousal support, consider the below.

“Support” Insurance: Life insurance coverage on the life of the child support payor or spousal support payor.

There are two forms of support insurance: Conventional (or traditional) life insurance and support life insurance.

  • Most people are familiar with conventional life insurance that is obtained through an insurance agent in which a single lump sum is paid at the death of the insured to the stated beneficiary. Coverage and premium are level.
  • Support Life Insurance is different in that, rather than receiving a lump sum on the death of the support payor/insured, the beneficiary will receive a series of support payments until the support obligation pursuant to the separation agreement or court order has been met. Usually less expensive compared to traditional life insurance.

There is much debate in the industry as to which method of insurance is most suitable, and whom should be the beneficiary, owner and premium payor of the policy (we wouldn’t want the policy to lapse). And of course there could be different tax consequences depending on the type of insurance that is purchased. When it comes to divorce, insurance is not a “one size fits all”.

These insurance issues are just the tip of the iceberg especially when it comes to families experiencing separation or divorce. Other concerns to think about are what if one of the parents or children suffer a disability or critical illness? Is there sufficient liquid assets to withstand the financial devastation critical illness or disability can wreak havoc? Are there provisions in place should a premature death of the non-support paying parent or child occur?

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