A divorce is an unfortunate event that entails several financial implications unforeseen by many. Since most of the married couples manage their finances together, the separation becomes a messy affair. Consequently, a couple’s investments and other financial assets are affected drastically. Insurance is no exception to this. Although couples experience an emotional turmoil during the divorce process, they should not let emotions affect their judgment when it comes to finances. Hence it is important to understand the nuances of financial separation as well. So how does life insurance work after a divorce? Read further to find out.

Changing the Beneficiaries
Generally, married people make their partners the primary beneficiary of their life insurance policy. However, if the divorce was rather acrimonious, one wouldn’t want their estranged spouse to benefit from their death. Whether it’s a term insurance policy or a whole life policy, the policy owner has the right to change the beneficiary at any time. If there are children involved, they can be re-designated as the primary beneficiary.

Estimating the Cash Value
Certain life insurance policies such as whole life policies accumulate cash value overtime. The premium paid accumulates interest over a period of time. The portion of the money that increases in value is referred to as the policy’s cash value. In case you choose to opt out of the policy, you can give up the death benefit and elect the cash value. During a divorce, it is a common practice to divide the cash value of insurance evenly between the partners.

Discussing the Duration of the Coverage
The life insurance duration should be in accordance with the duration of the alimony and age of the children. In order to protect the children from contingencies, it is best to ensure that the insurance coverage expires when the child support obligation comes to an end. This way one can ensure that the children are protected with an insurance cover until they are independent.

Protecting the Children
One of the most challenging tasks after taking a divorce is becoming single parents. Unfortunately, not all of them can rely on their ex-spouses to pay the life insurance premium regularly after a divorce. Hence it is best to have a Plan B in case the worst happens. In case of divorce on bitter terms, it is always advisable to purchase a separate life insurance policy. Single parents need to have an adequate life insurance cover to safeguard the future of the children. To estimate the minimum benefit for life insurance, calculate the years until the youngest child turns 18 (or, if you want to be extra safe, 21) and multiply this number by annual income.

Divorce is taxing both personally and financially. However, with proper planning sorting out the finances becomes much easier.