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Planning for Divorce: Life Insurance and Disability Income Insurance

In our previous post, we looked at an article written by Cristina Fuentes, a senior financial advisor at Ameriprise Financial Services, Inc., and considered her suggestions as to how couples planning a divorce should view the issue of health insurance. Here we will briefly look at life insurance and disability income insurance.

As Ms. Fuentes points out in the article, both life insurance and disability income policies can be used to support a spouse and children after a divorce. The important thing with these types of policies is making sure an ex-spouse and/or children are named, or will remain named, as beneficiaries under the policy after the divorce.

In regard to life insurance, it often the case that these policies are structured on the assumption that the family will be living together in the same house and sharing all its resources at the time of the policy-holder's death. In the event of divorce this will rarely be the case. Also, in many family situations prior to a divorce, the spouse with the primary income is also the spouse with the most life insurance in his or her name, which may makes matters difficult for the financially weaker party in the event of divorce. In many cases a divorcing spouse will change the beneficiary designation, removing their ex form the policy and leaving them without coverage.

Ms. Fuentes suggests that the financially weaker spouse to be attentive to the status of life insurance policies, and consider them a point of negotiation in divorce planning. In cases where the spouse providing alimony and child support dies, these policies can be an important way to maintain financial security.

Disability income insurance policies are also an important item to consider in the process of getting divorced. If the spouse providing alimony and child support is injured and no longer brining in money, the supported spouse and children may suffer as a result of reduced support payments. Under a disability policy completed before the divorced is finalized, an injured ex-spouse will receive monthly benefits, which may allow them to continue full support payments.

Dealing with the financial aspects of a divorce often presents difficulties for ex-spouses. It is wise to work closely with an attorney to ensure you and your children will have financial security once the divorce is finalized.

Source: San Gabriel Valley Tribune, "Divorce adds fuel to changes in insurance coverage," Cristina Fuentes, 10 Jan 2011.

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