Divorce affects more than your relationship status. It changes your financial landscape, your living arrangements—and yes, even your life insurance.
While most people focus on dividing assets like homes, retirement accounts, and vehicles during a divorce, life insurance is often overlooked. But for many couples, especially those divorcing later in life, life insurance policies can represent significant financial value—and may even be a legal requirement to keep in force.
Let’s walk through how divorce can impact your life insurance and what you need to consider to protect your interests.
Life Insurance Is a Marital Asset
If you and your spouse have been married for a number of years, chances are you’ve accumulated more than just memories. You may also have one or more life insurance policies in place:
- Term life policies purchased to protect your children’s future.
- Permanent life insurance (like whole or universal life) as part of a long-term financial plan.
- Employer-provided coverage that carries a modest death benefit.
Whether individually owned or jointly purchased, these policies may be viewed as assets in a divorce. And depending on your state and divorce settlement, they could be divided, sold, modified, or even court-ordered to remain in force.
Evaluating Life Insurance in Divorce
If you or your spouse owns a life insurance policy, you have several options:
- Let the policy lapse if it’s no longer needed and no one wants to pay premiums.
- Maintain the policy, with one spouse remaining the insured and the other listed as beneficiary.
- Convert a term policy into permanent life insurance to create a more flexible or valuable asset.
- Sell the policy through a
life settlement, in which a third party purchases the policy for a lump sum—sometimes more than its cash surrender value.
To explore the life settlement option, it’s wise to consult a licensed
life settlement broker. They can help assess the policy’s fair market value and manage the transaction in accordance with state laws.
When Life Insurance Is Court-Ordered
In many divorce settlements—especially those involving children—life insurance may be court-ordered. For example:
- A parent who owes child support may be required to maintain life insurance with the ex-spouse named as beneficiary.
- Life insurance can be used as a tool to ensure alimony or support payments continue if the payor passes away.
If you’re in this situation, it’s crucial to
understand your obligations before making any beneficiary changes. Violating the terms of a divorce decree could lead to legal consequences.
Changing Your Beneficiary: Proceed with Caution
If your ex-spouse is listed as the beneficiary on your policy and you
don’t have a court order requiring it, you may wish to update it. However:
- Simply updating your will is not enough. Life insurance beneficiary designations override wills.
- Some states
automatically revoke ex-spouses as beneficiaries after a divorce—but others do not.
- Always
contact your insurer directly to change beneficiaries.
Also, avoid naming minor children as beneficiaries. Insurance companies generally won’t pay death benefits directly to minors. Instead, consider setting up a trust or naming a custodian.
Do You Still Need Life Insurance After Divorce?
That depends.
You may need less coverage if no one depends on your income anymore. But in other cases, divorce may increase your need for life insurance. For example:
- You’re still supporting children or elderly parents.
- You’re the sole income earner in your household.
- You want to leave a financial legacy or help cover final expenses.
A newly single life often comes with
new financial goals. Your insurance coverage should evolve accordingly.
Final Thoughts
Divorce is hard enough without letting important insurance decisions fall through the cracks. Life insurance can provide security, flexibility, and even financial opportunity during and after a divorce—when managed wisely.
If you're recently divorced or in the process, consider speaking with a licensed agent or financial professional. We can help you:
- Review your current policies.
- Assess your ongoing needs.
- Adjust beneficiaries or coverage to match your new reality.
Divorce may change your life, but it doesn’t have to leave you unprotected. We are here to help!
