Personal Insurance & Divorce: What Are Your Options
Divorce. We sincerely hope that it’s not something that you have to go through. But, in the event of a separation there are certain insurance housekeeping items that you will need to take care of.
Health & Dental Coverage
If you were covered under your spouse’s policy or vice versa, you will need to first update your employers’ plan administrator, informing them of the separation. If you have children, they will be able to stay on the benefits plan. However, the spouse who is not the primary on the plan is still in need of health coverage, they will need to apply for their own individual coverage unless there is a separation agreement in place stating that they are to remain on the plan. Alternatively, if you both have health and dental coverage through work, you will simply need to remove your spouse from the plan at which time they have 30 days to roll back .
When it comes to divorce, you will need to sort out your policies, beneficiaries or trustees. As well as any legal supporting documents that need to be in place.
The Policy Details:
When going through the motions of a separation you will need to review many details regarding your life insurance policies, including: Is this a joint first-to-die policy? Who owns the policy? Is the policy up to date? Is there any cash value in your policy? Any of the questions might spur the next step into action before your separation documents can be finalized.
Assigning A Beneficiary:
A life insurance policy will always need to have a beneficiary assigned so that in the event of your death, the insurance company knows who to pay out the claim to. Currently, your beneficiary might be your spouse. Now comes the question, is your beneficiary revocable or irrevocable? If it is irrevocable, you will need the signature of your spouse in order to change your designation. If you have children, they may be the likely next choice to take the place of your spouse. In the dissolution of a marriage without children, you may opt to assign a parent, sibling or close friend as the beneficiary.
As an aside, there are certain scenarios where you may be required to leave your spouse as the beneficiary – most commonly where alimony and child support payments are critical to the livelihood of the other spouse. In all cases, we recommend that you consult with your insurance advisor and legal counsel before making final decisions.
Choosing A Trustee:
When naming children under the age of 18 as your beneficiary, it’s important to note that you will need to appoint a trustee on their behalf. This individual should be someone you trust to manage finances and possibly be part of the care arrangements for your children in the event of your passing before they are of age. Your spouse can absolutely remain in place as the trustee or you can assign this to another person. Often people will choose to assign a secondary guardian who will care for the children in the event that both parents were to pass, and this person usually doubles as the trustee for the insurance policy
Age To Assign – Just A Friendly Reminder
As a side note, it is best to have a wise trustee, and stipulate in your will that expenses can be paid from your estate by the trustee prior to a certain age. The truth is, I have seen 18-year-old children get 250,000 and have nothing but a hopped-up Subaru at age 20.
Just like no two persons are the same, no two divorces are identical. When going through this complex time, we recommend you educate yourself on your options and involve expert counsel where possible. Never act with impulse or emotions, a flippant change today may need to be reversed with the cost of your time, and legal fees.