In divorces that include alimony or child support obligations, life insurance is often used to protect the recipient in case of the payor’s untimely death. Life insurance companies have drastically different rates depending on a client’s height, weight, health history, family history, medications, etc. By doing some preliminary underwriting, we can help match the client to the appropriate insurance company, and ultimately help save time, aggravation, and money.
With regards to divorce cases, here are some common insurance-related mistakes:
- Not having insurance “in-force” prior to finalizing agreements. Life insurance related to a divorce case should be in force before the final agreement is signed. This will protect the receiving party in case the payor is found to be uninsurable. In addition, life insurance payments can be tax deductible to the payor if it properly structured within the divorce agreement.
- Relying entirely on Employer based life insurance – Many people have employer based life insurance that is often a multiple of their salary. While these policies are offered with minimal or no underwriting and have very attractive rates for younger employees, they are dependent upon a person’s employment at that company. If a person switches jobs, or get laid off, this coverage may be lost or become unaffordable.
- Improper ownership of insurance policies. In order to ensure that the life insurance does what it’s supposed to, and stays in force, it is best to have the insurance owned by the receiving party. (husband owns wife’s policy and wife owns husband’s policy). This serves to ensure that beneficiaries cannot be changed to disinherit the former spouse, or that policy lapses due to lack of payment.
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