When Arizona spouses begin divorce proceedings, there is a seemingly endless list of topics which must be negotiated. Even when the divorce is not contested and both parties work together to reach a mutually agreeable end to their marriage, it is still important to ensure that all details are ironed out before the divorce is finalized. One issue that is often overlooked is term life insurance.
A spouse who is required to make alimony or child support payments to the other is often required to obtain or maintain a term life insurance policy. Such a policy is meant to cover the financial obligations toward the ex-spouse or children in the event that the paying spouse dies before those obligations are fulfilled. In the midst of all of the other changes during divorce, it is easy to forget this step.
There are important mistakes that should be avoided when it comes to term life insurance and divorce. One is being underinsured. Each partner should check that the coverage offered with the chosen policy is sufficient to fully cover the total financial obligation in the event of a death.
Another potential pitfall is a lapsed policy. A policy can lapse if the insured party fails to pay the premiums, and when they reapply they could find that they are no longer eligible for the same coverage, or that the premiums have increased. The best way to avoid this situation is for the beneficiary to be added to the policy as a party to be notified if the premiums are unpaid.
One last area of concern is a change in beneficiary. At times, an ex-spouse may decide to change the beneficiary on their term life insurance policy. The only way to ensure that this does not occur is for the beneficiary to become the owner of the policy.
When it comes to divorce, there are a multitude of things that must be negotiated. Term life insurance is just one of those items, but it can become essential in the event of a death. Once your Arizona divorce agreement is signed and filed, there is usually no opportunity to go back and ask for changes on this type of issue. The best policy is to make sure that your divorce is handled as professionally as possible, and that every item is carefully checked to ensure that your future financial security is protected.
Source: Live Insurance News, “Life insurance and divorce – what to do with a term policy?,” Chris Taylor, July 23, 2012