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Life Insurance After Divorce

shutterstock_124671304When a marriage is legally dissolved or annulled, the rights of your spouse to your will, trust, power of attorney and several other items on your financial checklist will automatically be null and void.
But did you know that divorce does not automatically cancel your ex’s rights as beneficiary of your life insurance policy? If you acquired a life insurance policy and named your spouse as the beneficiary, you have to take very particular steps to change that. If you don’t, your ex-spouse could become the recipient of a payout upon your death!
It’s an easy thing to miss. With all the more pressing legal and financial issues to sort out during a divorce, life insurance policies might get placed on the back burner. The named beneficiary can’t be changed until a divorce is complete, anyway, and things that fall victim to months-long delays often get missed altogether. The emotional rollercoaster of a divorce can make it difficult to focus on its more mundane aspects. But the biggest culprit of all might be simple misinformation: unlike many other financial details, term life insurance beneficiaries don’t change automatically.
Here are some things to keep in mind about life insurance during and after a divorce:

  • Life insurance policies should be listed as an asset of the marriage during divorce proceedings. If they are not, it’s possible that changing the named beneficiary later down the road may actually become impossible. Without your “intentions” for the policy stated in writing, the insurance company will always default to the beneficiary already on the policy.
  • “Whoever owns the policy, controls the policy.” To maintain full control of your term life insurance policy, it must be “awarded” to you in your divorce. If you “own” the policy, then you can choose to change the beneficiary as you see fit. Make sure this is spelled out and not up for dispute.
  • In community property states, your spouse needs to sign off on any changes made to your life insurance policy. This does not change even after your spouse becomes your ex-spouse. If you did not get “awarded” your life insurance policy in the divorce, you’ll need your ex’s signature to assign a new beneficiary. Yes, they might consent to do so…but what if they don’t?
  • Remarriage does not automatically give your new spouse any rights whatsoever over any life insurance policy you had prior to the marriage. Beneficiaries can only be changed based on the rules of your state and the life insurance company.

It can be tragic to pay premiums on a large life insurance policy for years, only to discover that an ex-spouse will benefit from it. But due diligence on the part of yourself and a competent lawyer can prevent this from happening. Don’t leave your term life insurance policy out of the picture during divorce proceedings…and remember to contact a SelectQuote representative to help make the transition to a new beneficiary as smooth as possible.

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