After a divorce, a spouse who is receiving child support, spousal support or other payments relies on their former spouse’s earning ability to cover those payments. However, merely having the payments order in divorce decree does not ensure their payment.
Should your former spouse die, if you have not made the proper arraignments, you could be left without any of the financial benefits you were promised. Life insurance is typically required for the paying spouse to insure that there is an adequate source of funds to satisfy the expenses.
Potential Problems with Life Insurance
A significant problem that occurs with this scenario is that the spouse obligated to pay the child or spousal support could simply stop making payments on the life insurance. This would cause the policy to lapse and you would not know until you attempt to apply for the death benefit.
It is necessary to have your divorce decree drafted so that the policy will name you as a party to be notified, should the policy premium not be paid.
This would allow you to immediately have your attorney demand the premium be paid and prevent the policy from lapsing.
Is There Enough?
You also want to have the dollar value of life insurance coverage specified in the divorce decree. This amount should be equal to all of the payments that you would have received over the term of the agreement and should be enough to cover your remaining mortgage, outstanding credit card debt and children’s education costs, including fully funding college expenses.
Better to Be an Owner
While you must be the beneficiary of the policy, consider insisting on being named as the policy owner. The value of being the owner of the policy is that you control the policy and the naming of the beneficiaries.
The risk in allowing your former spouse to be the owner of the policy is that it permits your former spouse to change the beneficiary. If it is the ex-husband who is insured, he could remarry and make his new wife the beneficiary. Again, you might not find out until it is too late.
Should that happen, you could file a claim with his estate, but the lawsuit will cost time and money, and there is always the danger that there may not be sufficient funds in the estate to satisfy you lump sum claim.
Another option may be to set up an irrevocable insurance trust to own the policy. Your divorce attorney can discuss your options and offer guidance on which one may work best for your circumstances.