Life Insurance and Divorce
Like most of your financial planning objectives, your life insurance needs are related to the circumstances of your life. As your life goes through changes, your life insurance often needs to change with it.
No life change may be of more consequence than a divorce. In addition to the financial and emotional difficulties that often accompany divorce, there are special concerns about your life insurance. Generally, one spouse is the beneficiary of the other's insurance, and vice versa. So you have to think about whether to change your beneficiary and whom your new one will be. You also have to consider whether a new designation will have tax consequences. One thing is certain: A divorce will have an effect on your life insurance needs, and your policy must be updated to reflect them. Not all life insurance policies are just for death protection. You may have cash value policies such as whole life, universal life, variable universal life, or variable life that you've used to save for your children's college education or as a supplement to retirement. Divorce may not directly affect the savings side of your life insurance. Keep in mind, however, that the cash value of any savings may be considered part of the marital assets.