What happens to life insurance during divorce - advice from family lawyers at Shulman Law Firm in Ontario

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Life Insurance and Divorce: What You Need to Know

As your divorce settlement ends, there may be a crucial area in the agreement that you may have neglected. Take a second look at the details you are consenting to as it relates to your spousal and child support payments. Have you taken steps in your agreement to ensure payments continue from your spouse should he/or she pass away unexpectedly? Are you considering life insurance?

This may seem unthinkable at the moment. Yet it would be unwise not to contemplate the financial impact to your household – should this ever happen. Especially as you navigate managing finances on your own. Ask yourself, have you spoken to your lawyer or ex-partner about this? How would you maintain yourself and your children? If your spouse is no longer in the picture to fulfill their financial obligation to you? Read on to learn how to use life insurance to secure your spousal and child support payments after your divorce.  

What is the process to qualify? 

If there is currently no life coverage in place, it may take longer than expected to get through the application process. They may require additional information depending on your ex-partner’s habits, age, medical and family history. This could delay getting the coverage in place before finalizing your divorce settlement. And potentially cause a major gap in your long-term financial security. Keep in mind the risk if your partner is not healthy or engages in risky behavior such as drug use or skydiving. Consider: the addition of a significant additional premium or they could not qualify for coverage at all. Finding out your ex-partner doesn’t qualify for life insurance after you have already negotiated the terms of your settlement could postpone getting a plan in place. Or worse- take the conversation off the table altogether. 

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Does your ex own any current life insurance policies? 

Being proactive when looking into options for coverage can make all the difference. Your ex-partner may have life insurance in place from an employer. Or the two of you may have taken out private coverage during your relationship that is still in place. The good news: the insurance plans already in force can be counted toward the total amount of coverage you will need. (To ensure your support payments after the divorce and help to make up for any shortfalls.) Now is the time to figure out how much life insurance you will need overall. Work with an insurance professional to determine what your total insurance needs are. 

Who owns the current life insurance policies in place? 

A thorny issue when setting up life insurance policies for ex-partners in a divorce is discerning who will own the life insurance policy. Remember a settlement that includes a life insurance policy, could allow for an ex-partner to retain ownership of the policy. (And the ex-partner providing the support to be the insured person.) There are many good reasons for the spouse receiving the support payments to want to structure the policy this way. The ex receiving the support may want to guarantee that they are beneficiaries of the policy. That the beneficiary cannot be changed in the future, which could happen if the former partner does not control the policy. 

Another valid reason to name the spouse receiving the support of the owner of the policy: to confirm the premiums up to date payment of the premiums. This may help to safeguard the policy from falling off the books at a crucial time.  However, who will end up owning the policy rests not only up to negotiation but the details documented in the insurance contract. The owner of the policy must be identified on the life insurance application directly. 

Who will Pay for the Life Insurance Policy? 

Negotiating a divorce settlement that includes life insurance? Consider the options available to you to pay the premiums and keep the policy in force. Depending on what you and your partner agree to can make it easier to administer and manage the policy as time goes by. For example, will you pay the premiums and potentially own the policy on your ex-partner’s life? After getting your ex to apply for insurance? Will your ex-partner potentially own and pay for the policy as a separate line item in your agreement? Or will the premium for the life insurance be included in the support payment owed to you? What choice will work best for your family situation?   

A point of contention when it comes to life insurance is that the person paying for the policy may want to own the policy. That may or may always be the best course of action in a divorce settlement. Especially if the insurance was agreed upon after the divorce was already settled. If your ex owns the policy and stops paying for it, you will not have any say in what happens to the policy. Even if the policy is no longer valid due to nonpayment.  Unfortunately, even if you wanted to pay the premium yourself to bring the policy up to date, you would not have the ability to do so. Unless your ex grants you permission to take over the ownership of the policy,

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