Life insurance and divorce settlements

Term life insurance is one of the cheaper forms of life insurance because its premiums are usually low and affordable. The catch to this is that the policy only applies during a limited time period. This is usually between 10 to 20 years. 

Some insurance companies let you choose the number of years you want the coverage to be active for. After choosing, then they’ll calculate the premium you have to pay. This premium amount is fixed for this period. 

At the end of the policy period, the policyholder can either cash out the policy or renew it at a higher premium. The payout at the end of a term life insurance is paid to the beneficiary tax-free. 

Group life insurance is very common throughout Canada. If your spouse is working, it is very likely that he has group life insurance. This insurance coverage is usually done by your spouse’s employer to cover all employees in the company. It can also be done by a union. 

Because the insurance plan is done by your spouse’s employer, your spouse may not need to pay any premium for this life insurance coverage. However, if your spouse wants more advanced coverage, he can elect to have a part of the premium deducted from his salary. 

Most group life insurance policies are usually term life insurance. Your spouse would have been given a certificate of coverage to ensure that even if he leaves the company, he can resume the coverage at another insurer.

Whole life insurance is more advanced than any of the others already stated. It has a higher premium and applies throughout the lifetime of the policyholder. 

During the course of a whole life insurance policy, your spouse can either cash it out or even borrow against it as an asset. Cashing out the whole life insurance policy is a very convenient option as due to the divorce, you might need a lump sum to pay for things like college for the child of the marriage.

If you’re not the owner of the insurance policy in question, your ex can change the beneficiary of the insurance policy. Your ex could also stop paying the premium on the insurance policy and it could expire. You won’t normally be notified of this by the insurance company because it has a contractual obligation to the owner of the policy, not you — the beneficiary. 

You can mitigate this risk by using third-party authorization. This way, changes cannot be made to the insurance policy without the consent of the third party, and you can be notified if there are any changes to the policy. 

A competent divorce lawyer can always help you set up the third-party authorization process.

It’s also very possible that the financial situation of parties changes after the divorce. For instance, your ex could lose his job, or you may earn more income than he does. This means that the divorce obligations have to be renegotiated, including the life insurance policy and its accessories. 

This can be done through the courts, but it’s usually easier and faster to do this out of court. However, if renegotiating out of court, ensure that you have a lawyer with you to give a legal stamp of authority to the whole process.