Tuesday, April 12, 2011

Can an Ex-Spouse Keep a Life Insurance Policy on You?

The effects of divorce on life insurance are a common cause for concern. If you recently got divorced, or are in the middle of a divorce, understanding how your life insurance policy may or may not be affected by such dramatic changes in your life is essential to protecting your financial security. The ability of your ex-spouse to keep a life insurance policy on you hinges on who actually owns the policy and whether your divorce settlement specifically addresses this issue.

The Insured


The person whose life is the focus of a policy is called “the insured.” Life insurance carriers are most concerned with the specific details of the insured person because all of their financial liability lies with this individual. Policies are priced based on the risk profile of the insured.

The Owner


Only the owner of a life insurance policy has the authority to make changes to the contract. Regardless of who is actually covered by the policy, the insurance company will only accept and implement contract changes submitted and requested by the policy owner. If your ex-spouse owns a policy covering you, after the divorce he is under no obligation to cancel the policy or otherwise transfer ownership to you.

Divorce Settlements


Many divorce settlement agreements contain provisions requiring each spouse to maintain a life insurance policy on the other. In such cases, the policies are usually owned by the ex-spouse to ensure premium payments continue and no authorized changes are made. Divorce settlements typically detail the specific death benefit and policy provisions that must be maintained, usually resulting in the need to purchase new coverage that complies with these requirements.

Potential Problems


The most significant potential problem with your ex-spouse owning a life insurance policy on you involves the beneficiaries. In the event of your death, a lump sum of money would be distributed to your heirs. However, your ex-spouse retains the right to change the beneficiaries at any time and may do so without your consent or consultation. If you disagree with the beneficiary choices made by your ex-spouse, there is nothing you can do to change them.

References


Woman's Divorce: Life Insurance Considerations
Divorce 360: After Divorce, Life Insurance Matters




This article is a Twisted Nonsense Exclusive! (04/12/2011)