In 2019, married couples only accounted for almost half of US households. In the same year, the Census survey revealed that 11.1% of households consisted of divorced women. As for divorced males, the rate was 8.3%.
These divorcee rates represent an average increase of 1.6% from 1990 to 2019. However, the nation’s overall divorce rate sits between 40% and 50%.
If you’re getting a divorce, you likely know how this will change your financial situation. You’re probably preparing yourself for a loss in total income or even having to get and move into a new house.
What you may be unaware of is how the split-up with your ex will also change your life insurance needs.
That’s right. After a divorce, a considerable part of your life insurance needs would also change.
Ready to learn how exactly a marriage dissolution can and will affect your coverage? Then please keep reading, as that’s what you’ll learn in this post!
A Quick Look at Life Insurance in Married and Parental Households
71% of married US households with children and mortgages have life insurance coverage. As for adults who are single, have no kids, or without home loans to think of, only one in four carry life insurance.
This difference is due to the higher consequences of death in married households.
Now, you may be wondering why there’s a need for a policy in case of a mortgage. After all, housing-related debt won’t pass over to your loved ones when you die, would it?
Granted, your heirs won’t have to bear the responsibility of paying off your mortgage debt. However, if they want to keep living in the same home, then they would need to take over the home loan payments. That’s because mortgages won’t cease to exist even if the borrower does.
This is one of the reasons married households secure larger life insurance coverage. Parents, for instance, need the assurance that their kids will still have a home even in their passing. Couples want the same thing for their beloved partners.
In married couples, more financial obligations usually fall on the “higher earner.” The higher-earning spouse takes on the responsibility of being the primary breadwinner.
For example, it’s common for breadwinners to purchase life insurance for the family. They would then name their spouse as the life insurance beneficiary. In households with kids, the children also become part of the beneficiary list.
How Divorce Impacts All These
When you were figuring out how to file for divorce, you’ve likely seen the terms “alimony” and “child support.” If you haven’t given it much thought, though, now is the time to do so.
That’s because almost all divorces, peaceful or not, change a person’s financial situations. In the case of the higher-earner, this usually means paying alimony and or child support. These payments are often part of the divorce settlement stipulation.
What Alimony Is
Alimony is a legal obligation to continue providing financial support to an ex-spouse. Many people also refer to this as “spousal maintenance. Either way, it requires the higher-earning spouse to make payments to the one who earns less.
What About Child Support?
Most family laws also require non-custodial parents to make child support payments. This can either be the mom or dad who doesn’t have physical or legal custody of the minor.
Child support involves continuous, periodic payments to the custodial parent. However, the parent who does have custody must use it for the child’s financial benefit.
Do All States Have Alimony and Child Support Laws?
Yes! However, both alimony and child support laws usually have a set time limit. How long the spouse or parent will make such payments depend on state and local laws.
Most states, however, prohibit permanent alimony. Only a handful, such as Connecticut, Florida, New Jersey, and North Carolina, don’t. In these states, plus Vermont, West Virginia, and Oregon, spousal support can last for life.
Child support, on the other hand, usually ends once the minor turns into an adult, which can be from 18 to 21 years old.
When Court-Ordered Life Insurance Comes Into Play
Family courts may require providing spouses to get or keep a life insurance policy. In many cases, they do so as an assurance of continued alimony and or child support payments. Court-ordered life policies protect the recipients in case the paying spouse passes away.
After all, there’s no predicting what could happen later, tomorrow, or the next year. An accident may force a paying spouse or non-custodial parent unable to meet their legal dues. Unfortunately, these incidents are common, so much so that they claimed 169,936 lives in 2017.
As you can see, a court-ordered policy reduces the risks for everyone involved. This is especially true for the one receiving alimony or the kids who aren’t earning any income yet.
Your Life Insurance Options Following a Divorce
If you’re facing a court-ordered policy, you do have several options. However, this all depends on whether or not you have an existing plan. Also, don’t forget to consider your own needs, as there are some types of policies that you can use for your benefit.
On that note, let’s go over some of the best ways to handle life insurance needs after a divorce.
If You Don’t Have Life Insurance Yet
You don’t even need to wait for a court order to start considering getting life insurance. You can still get affordable life insurance in your 40s, so long as you compare all your options. You’d want to do it now, though, as your premium payment would likely hike up every passing year.
Besides, even if you were in a grievous divorce with your ex, you may still have your children to think of. By getting insured now, you can worry less about the kids facing financial woes after you pass away.
As for what type of life insurance to get, you have two main options: term and permanent. Term Life Insurance
Term life insurance costs less than permanent, but the former has an “expiration” date. How long before it expires depends, as you can usually choose between a range of 10 and 30 years. Once it expires, you’d have to buy a new one as you see fit, but this will cost a lot more. Permanent Life Insurance
Permanent life insurance, on the other hand, never expires, so long as you pay your premiums. Moreover, you can make such policies earn money that you can then use after some time. These include whole life and universal life insurance programs.
With either permanent life coverage, you get to satisfy your court-ordered insurance obligation. However, you also get to benefit from it even if the beneficiary is your ex. Once your policy builds-up enough cash value, you can borrow or withdraw against it.
You can then feel free to use the money you take out of your policy for anything you fancy. In some cases, you can even use it to cover near-due alimony or child support payments.
If There’s an Existing Policy
Do you already own a term policy with your former spouse as the beneficiary? If so, then that may be enough to fulfill what the court has ordered you to do. However, it’s also an excellent time to consider upgrading it to a permanent life plan.
That’s right! Your current life insurance company may allow you to convert your term life to a whole life policy. Note that only some insurers offer this option, though, such as Banner Life Insurance.
Some insurance companies also allow beneficiary name changes. This is an option if you have several policies with different beneficiaries.
Let’s say that you’re keeping a policy with your sister or brother named as the beneficiary. As a new divorcee, they’re sure to understand that your finances need time to recuperate. In this case, they’re likely to be okay with you changing the policy’s beneficiary to your spouse.
Once things settle down, you can then consider getting a new policy for your sibling.
Moving Forward After a Divorce
As you can see, a divorce can take quite a toll on your finances, especially if you have court orders. However, this doesn’t mean that you’d have to sacrifice your welfare.
That’s why you should consider getting a flexible cash value-earning life insurance policy. This way, you can meet your legal obligations and still provide for your kids. At the same time, you’d also be able to use some of your policy’s earnings while you’re still healthy.
Ready to move your finances along after your court proceedings? Then please know that we here at Top Whole Life can help ease some of your burdens! Reach out to us, and we’ll be happy to give you your free whole life insurance quote.