When there is a divorce you have to realize that any insurance policy is another asset that will be considered in the agreement.
Whether the policy is Whole Life or Term, it has value.
And in the event of divorce, people who are required to pay their exes spousal support as well as child support may also be required to purchase a life insurance policy, making their ex-partner the beneficiary.
So when it comes to divorce is a term policy best?
Term life insurance tips
The purpose of life insurance is to insure against loss, and that typically means loss of income.
With a life insurance policy in effect money is available for the beneficiaries, i.e. the family, to replace any lost income from the main income earner’s salary for the number of years that the surviving spouse needs to continue raising young children. That’s why a life insurance policy of some type is often required as part of the divorce settlement.
Conversely, stay at home spouses provide child care that can be costly to replace, so they need to be covered by a policy as well.
Many financial advisors need to remind their clients that stay-at-home spouses are performing duties that will need to continue if the caregiver were to pass away, such as housecleaning, cooking and caring for the children. A life insurance policy leaves the surviving spouse with the money to pay for someone to manage these duties.
So is term life best?
Many independent insurance agents suggest Term Life Insurance, which have many advantages.
For example, the ex-spouse can purchase a policy for five or ten years to provide insurance until all the children reach age 18. So the length of the term is dictated by how long life insurance coverage is required. And shorter term policies will be generally less expensive than policies that run for 20 or 30 year terms.
An additional advantage is that policy holders only need to qualify once.
This means that they will have to take their physical examinations when they apply for the policy. Their rates will be set according to the age when they applied and their general health. And the rate, and therefore premium payment, remains stable until the term expires.
Finally, the policy holder may cancel the policy early if the purpose was only to provide support for the children.
For example, in the case of divorce the ex-spouse who was required to take out the policy parent may only need to maintain the policy for three years when the youngest child turns 18, but he or she only has the choice of purchasing a yearly policy or a five-year policy. A yearly policy needs to be renewed and becomes more expensive with every renewal. The option here might be to purchase a five-year policy that can be cancelled after three years and will cost less than renewing every year, suggests a local insurance agent.
A term life insurance policy allows the policy holders to choose who will be the beneficiaries of the death benefits.
In the event that the policy is being purchased solely for the benefit of an ex-spouse and the children, the ex-spouse purchasing the policy can name the custodial parent as the owner of the policy.
The bottom line?
Whenever it comes to getting life insurance it makes sense to speak with a qualified insurance expert who can help you to find the right coverage you need for the best possible price.
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