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Divorce And Life Insurance: Be The Responsible Party

divorce and life insuranceIn a recent piece for Huffington Post, Honorée Corder, the author of The Successful Single Mom book series, examined the questions of life insurance post-divorce. While on the surface, it may seem as if you’re both going your separate ways, Corder shared some eye-opening advice that illustrates why you shouldn’t just ignore a policy when dividing up the assets. This advice is particularly helpful if you’re part of the do-it-yourself divorce community.

First, Pay Attention To The Role Of Insurance In Risk Management

According to Corder, there are two types of insurance to consider for this — life insurance and disability. “When there are any financial obligations between ex-spouses, (e.g. alimony, child support, mortgage payments) those obligations should be protected in the event of a premature death or disabling circumstance that would prevent the paying party from fulfilling their legal obligation,” Corder explained.

“Due to the importance of these tools to the recipient, the parent on the receiving end should be both owner and beneficiary of the policies and take responsibility for paying the premiums (which means you want to negotiate for those premium payments in the support settlement outlined in the decree).”

Corder advises against leaving this info to the “responsible party.” Instead, as the receiving party, you should take it upon yourself to also be responsible.

“Don’t make the mistake of leaving the payments and beneficiary designation up to the ‘responsible party.’ Sometimes the responsible party isn’t so responsible after all,” Corder said.

Secondly: Pay Attention To Cash Value. 

Life insurance is often used as a wealth accumulation tool, Corder notes. In some cases, it’s the only estate plan a person even has. With whole life insurance policies, you can even gain cash value in the policy itself. “As a wealth accumulation tool, any cash value held inside a permanent life insurance policy and/or any value associated with a business buy/sell agreement that is funded with both life insurance and disability insurance should be considered ‘fair game’ when the assets are being divvied up,” Corder says. “Make sure you don’t overlook wealth that may be ‘hidden’ inside an insurance policy and negotiate for either a ‘buy out’ or revised coverage that puts you in control of both premium payments and the beneficiary designation.”

Thirdly: Evaluate Insurance Coverages. 

Corder notes particularly that if you file for divorce and have the new designation as “single parent,” you should evaluate your existing policies (or the lack thereof). Have a plan in place for both disability and death. “Make sure your children don’t end up on the short end of the checkbook if something unexpected happens to you.”

In Summary

The major takeaway that we didn’t realize regarding Corder’s reveals are that you can hold premium and beneficiary designation status on life insurance and disability insurance policies, even if you didn’t before. That’s another discussion that you should have with your spouse, regardless of whether you’re going through a DIY divorce, or you decide to litigate.

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