Life Insurance in Divorce: What Every Couple Should Know

How you’ll handle life insurance during a divorce or separation depends mainly on the type of life insurance. Here are the common types of life insurance policies you would have to deal with in Canada:

Term Life Insurance

Term life insurance covers a specific period, usually 10, 20, or 30 years. If the insured person passes away during this term, the beneficiaries pay the death benefit. This type of insurance is generally less expensive but does not build cash value.

Permanent Life Insurance

Unlike term life insurance, permanent life insurance covers the insured’s entire lifetime as long as premiums are paid. This type of insurance often includes a cash value component that can be accessed during the insured’s lifetime.

Universal Life Insurance

Universal life insurance is a type of permanent life insurance that offers more flexibility. You can adjust the premiums and death benefits to suit your needs, and it also has an investment component that can grow over time.

Whole Life Insurance

Whole life insurance is another form of permanent life insurance. It offers a guaranteed death benefit and builds cash value, which can be borrowed against or cashed in during your lifetime.

Critical Illness Insurance

While not strictly a life insurance policy, critical illness insurance pays out a lump sum if you are diagnosed with a specific illness listed in the policy. This can be crucial during a divorce, especially if one party is financially dependent on the other.

Joint Life Insurance

Joint life insurance covers two people, usually spouses, under one policy. This can be complex to handle during a divorce, as decisions need to be made about splitting the policy or having one party take over the premiums.

Understanding your life insurance type is the first step in making informed decisions during a divorce or separation. Consult with a team of Family Mediators and Certified Divorce Financial Analysts to navigate this complex issue effectively.

After the divorce settlement, some issues could crop up with the life insurance policy and present some problems. Here are some of them and how to address them:

Change of Beneficiary

One of the most common issues is forgetting to update the beneficiary on the life insurance policy. If not corrected, the ex-spouse could still be the beneficiary, which may not align with your current wishes.

How to Address: Review and update your beneficiary information once the divorce is finalized.

Premium Payments

If one spouse was responsible for paying the premiums, there could be issues with missed payments, leading to policy lapse.

How to Address: Decide who will be responsible for ongoing premium payments during the settlement and set up automatic payments to avoid lapses.

Policy Ownership

The ownership of the policy may come into question, especially for joint policies or policies used as collateral in the settlement.

How to Address: Clearly define who owns the policy in the divorce agreement and what responsibilities come with that ownership.

Cash Value Division

Deciding how to divide policies like whole life or universal life that build cash value can be complex.

How to Address: Consult with Certified Divorce Financial Analysts to determine a fair division of the cash value.

Coverage Amount

The amount of coverage may need to be adjusted, especially if the policy was initially set up to cover things like a mortgage or educational expenses for children.

How to Address: Reassess your financial needs post-divorce and adjust the coverage amount accordingly.

Spousal and Child Support

Life insurance is often used to secure spousal and child support payments. The policyholder’s responsibilities may need to be adjusted based on the new financial arrangements.

How to Address: Include clauses in the divorce agreement that specify how life insurance will be used to secure these payments.

Policy Cancellation

In some cases, maintaining the existing policy may be challenging for both parties.

How to Address: Explore options for surrendering the policy or converting it to a more affordable type of coverage.

By being aware of these potential issues and addressing them proactively, you can avoid complications and ensure that your life insurance aligns with your new life circumstances.

We know that if you’ve landed on this page, you’re likely navigating one of the most complex and emotionally charged periods of your life. The intersection of divorce and life insurance is fraught with questions, uncertainties, and emotional hurdles. We get it; we’ve guided countless individuals through this very maze.

That’s why our Soft Landing Divorce Settlement Method is designed to provide you with the clarity, peace of mind, and financial security you need during this transformative phase of your life. Our team of Family Mediators and Certified Divorce Financial Analysts are here to help you make informed decisions that will benefit you and your loved ones in the long term.

We don’t just offer advice; we offer a pathway to a smoother transition and a more secure future. From understanding your life insurance needs to ensuring you’re financially protected, we cover all the bases so you can focus on what truly matters—moving forward.

Ready to Take the Next Step?

Don’t navigate this journey alone. We’re here to help. Schedule a Get Acquainted Call with us today and let’s start crafting your pathway to a more secure and peaceful future.