Divorce Mediation: The Importance of Life Insurance in the Divorce Settlement

September has been deemed by the insurance industry as Life Insurance Awareness Month, so I thought this would be a good time to discuss life insurance as it relates to the dissolution of a marriage. When I enter into divorce mediation with a couple, one of the things I ask for are specifics on their life insurance policies. 
Many wonder why I need this information; and the reason is that these policies are typically used as security to ensure that full child and spousal support payments will be made in the event that the paying ex-spouse dies. This means we need to review these policies to determine if there is enough coverage for the providing ex-spouse to meet his/her obligations in the event of a worst case scenario.
Life Insurance to Secure Child Support Payments

If there are younger children at the time of the divorce, child support payments will continue for many years. The life insurance policy needs to have enough to compensate the custodial spouse until the last child turns 18. For example, let’s say you have three children ages 13, 11, and 8 and the non-custodial parent is paying a child support amount between $1500 and $2,000 per month. Let’s also assume that child support will be paid until the children reach 18 years of age.
Assuming the child support payment is $2,000 per month, that would be $24,000 per year. And since it will be 10 years before the last child turns 18, the insurance policy needs to have a term of at least 10 years, and even though the support payments may drop some when the older children become adults, it is best to allot $240,000 in coverage to be paid as a lump sum death benefit to the custodial spouse (for the benefit of the children).
Life Insurance to Secure Alimony

After a divorce, alimony may be required temporarily until the receiving spouse is able to receive the education and/or training necessary to become self-sufficient, or indefinite payments may be required if the receiving spouse is not able to become self-sufficient in the future. The type of alimony required will determine how much life insurance coverage is needed to secure the payments.
If there is a set length of time that alimony will be paid, then it is pretty straightforward. For example, if the receiving spouse is supposed to get $1,000 per month for five years, then the total alimony paid over that period would be $60,000. However, if the alimony is indefinite (or is paid until a change in circumstances occurs, such as a remarriage), a lump sum amount must be decided upon as sufficient to compensate for the needs of the receiving spouse should the paying spouse pass away.
Who Should Own the Life Insurance Policy?

Many of the details about the life insurance need to be worked out between the spouses. One of the most important is which spouse should be the actual owner of the insurance policy. In some divorces, the paying spouse owns the policy, and provides frequent updates to the receiving spouse to prove the policy is still in force. To provide additional security, some receiving spouses insist on being the policy owners, with the paying spouse still making the premium payments as part of their support payment.
As a divorce mediator, it is my job to help resolve these issues in an amicable, rather than adversarial way. I work closely with both spouses to determine their needs and what is most important to each of them. This way, we can most often reach a settlement that both sides can be happy with.

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