What to do with a Life Insurance Policy in a Divorce

When people get married it's fairly common for couples to take out life insurance policies to ensure their family continues on with financial stability if and when one spouse dies, but with the divorce rate being so high it's a common question to figure out what to do with that life insurance policy after a divorce.  

If you're over age 70, you may be able to sell the policy to an investor for a cash settlement worth more than your surrender value.  Find out how much your policy might be worth by filling out this free appraisal form, or keep reading below to explore your options. 

Your options will vary depending on your age and who your beneficiaries are on the policy.  If you still have young children, chances are the policy is mainly to protect them, and it would be wise to continue coverage until they're on their own or permanently.  If your ex-spouse is listed as the primary beneficiary you can update the policy so that your children are the primary beneficiaries instead, if that's your wish.  Perhaps you're on good terms with your ex spouse and may leave them as the primary beneficiary with children as secondary; that is a personal decision for you to make.    

On the other hand if you're older, kids are grown up, and maybe this was even a second or third marriage, what do couples do with that life insurance policy if they divorce? 

 

You can certainly continue paying premiums on the policy, typically paying to cover your ex-spouse's life, but depending on the circumstances it's generally odd to keep paying premiums for a life insurance policy after a divorce.  The whole point of a divorce for older adults is to split up assets and cut financial ties.  If you feel it's worth it to continue paying premiums, that may also be your personal decision, but most people want to move on with any financial connection.  If you own the policy on your own life, what you can do is transfer ownership to your ex-spouse so that they remain responsible for maintaining the premiums.   

If you have a universal life or whole life policy, these typically have a cash value account which holds a surrender value from the insurance company, and because of this it is often considered a financial asset when dividing assets.  In many cases a life settlement can yield a greater amount of money than the surrender value of the policy, so as a life settlement broker I would highly recommend trying the life settlement market before just surrendering the policy.  It's possible you may be able to get significantly more in a settlement.  

My job as a life settlement broker is educate clients while also representing them in the marketplace.  Every investor has a different level of motivation on each case, so it's best to shop it around and create competition in the marketplace in order to find the highest bidder.  In most settlements the investor pays a cash settlement to the seller once the ownership of the policy has changed, and will continue paying premiums on the policy until it matures and the death benefit is paid.  The investor will collect the death benefit, so the original owner is completely relieved of their life insurance contract and premium obligations.    

Whether the division of assets is just getting started or has already wrapped up, as long as the policy is still in force the current owner of that policy should try the life settlement market before they surrender it.  And if they're considering keeping it for the long term they can still test the market and see what offers come in as there is no obligation to accept one.    

 

Get started by giving us a call at 213.784.1481, or by filling out the free appraisal request on this page.   

Divorce life insurance