A common order in many divorce settlements is a decree which states you must provide life insurance for children or an ex-spouse.
The reasoning behind this is the life insurance enables you to provide income to these dependents in the scenario you or your ex-spouse die.
The problem in this situation is divorce decrees are expected to be completed immediately while applying for traditional life insurance often takes weeks or months.
Not only does this make no exam life insurance easier to qualify for, it also significantly reduces the time period of the application process. In fact, some providers currently offer same-day approval rather than the standard 4 to 6 weeks waiting period.
The speed at which no exam life insurance can be purchased is what makes it so common for divorce decrees which are requested or required.
Below we look at the specifics of buying no exam life insurance for a divorce settlement or decree.
What Happens to Existing Life Insurance?
Before you think about buying new life insurance after a divorce, you should consider any current policies you might have.
Simply put, you should ask yourself the question of “what happens to my existing life insurance after my divorce”?
Of course, this depends on your specific situation, but it’s largely related to who the beneficiaries are and if there is a cash value available.
The courts often consider the cash value component separate from the rest of the life insurance policy. Sometimes the cash value is considered an asset and must be surrendered.
As for beneficiaries, it’s important to reassess these after a divorce. Oftentimes, people are too caught up in the divorce proceedings to remember to change the beneficiaries on their life insurance policies.
Fail to change these beneficiaries and your ex-spouse might still receive the payout when you pass away.
Why Is Life Insurance Used as Part of a Divorce Settlement?
It can be slightly confusing to understand why life insurance is even used as part of a divorce settlement or decree at first.
The primary reason why this is sometimes ordered by the courts is to help ensure the financial stability of the ex-spouse or children in the future.
It’s easier to look at it this way: imagine you’re paying child support or alimony and then suddenly die. The money going towards your ex-spouse or children is suddenly cut off and they’re left in the dark.
A life insurance policy prevents this. At the very least, your ex-spouse and children will receive a small death benefit to help them going forward.
A no exam life insurance for divorce settlements or decrees is required simply to help alleviate further financial hardship in such situations.
Some divorce settlements even require both parties maintain life insurance policies. This helps protect the children if either ex-spouse dies.
Most life insurance policies are taken to cover children after a divorce settlement or only valid until the child turns 18 years old.
Unfortunately, there are several potential problems you should watch out for when buying no exam life insurance for a divorce settlement or decree.
The life insurance in this situation is often included as part of the estate when the policyholder passes away.
Because it’s included as part of the estate, the life insurance policy payout is often taxed when life insurance is usually not taxed.
To get around this problem, many people assign ownership of the life insurance policy to the ex-spouse beneficiary.
When Does Life Insurance in Divorce Settlement Make Sense?
It doesn’t always make sense to buy a life insurance policy during divorce proceedings.
The situation where it’s most often required in is when there is one primary breadwinner and the other spouse doesn’t have the skills or experience to make a similar income.
The breadwinner is then required to pay alimony to the ex-spouse. A life insurance policy is added on in case the breadwinner dies. This way the ex-spouse still has an income and doesn’t suffer undue financial hardship.
The type of life insurance most commonly taken out in a divorce scenario is a term life insurance contract. A death benefit is simply paid out to the beneficiaries when the policyholder passes away.
Though it might seem like life insurance in a divorce settlement only benefits the ex-spouse, it can also benefit the primary breadwinner proceedings as well.
Namely, including life insurance gives the primary breadwinner more leeway and wiggle room for the rest of the divorce proceedings.
What is the Usual Amount of Coverage?
The policy limits and premiums for life insurance in a divorce settlement are often much different than normal life insurance.
The most common amount of coverage sought and awarded is 5 to 10 years of the primary bread winner’s normal income.
So, for instance, if the primary breadwinner makes $50,000 a year, the ex-spouse should seek a policy of between $250,000 and $500,000.
Find the Best Life Insurance for a Divorce Decree
Don’t just rush out and buy the first life insurance policy you see after being issued a divorce decree.
Even though time is likely of the essence, it pays off big-time to do your research and find the best policy possible.
Not only does the best possible better protect your ex-spouse, children, and other beneficiaries, but it also ensures you’ll pay the best premium as well.
That said, you have two main life insurance options in this scenario. You can buy a whole life policy or a term life policy.
Though whole life insurance is considered the best option for some situations, mostly involving young children, term life is usually better for a divorce.
The main reason for this is whole life insurance can be cost prohibitive, especially in the situation of a divorce settlement or a decree.
Still, though, term life policies are more financially viable for most people and offer adequate coverage in the vast majority of situations.
Term life policies are also often available without a medical exam. This means you can buy one in as little as 15 minutes.
No exam life insurance of this sort if particularly valuable for those required by the divorce court to buy life insurance as part of the divorce settlement.
If you’re required to buy life insurance as part of a divorce settlement or decree, no exam life insurance is usually the way to go.
It will meet the requirements set forward by the court, help protect your ex-spouse and children, and give you more leeway in future divorce proceedings. It will also require less of a financial commitment by you than other options.
Remember to research your life insurance options before making a final decision. Not all no exam providers offer the same form of coverage. It pays off greatly to take some time and do your research so you make the best life insurance decision possible.