“With nearly half of all marriages ending in divorce, it’s not uncommon to have clients who are either going through divorce proceedings, living as a single parent after a divorce, or have been married more than once–with or without stepchildren.”
Divorce can be extremely stressful, but in addition, the challenges divorce brings to estate planning can be an added worry. In many instances, a frequently overlooked strategy can provide real solutions for divorcees and blended families. That’s life insurance. Using life insurance to address some of these issues, can help you create an estate plan that really fits your needs, goals and unique family circumstances.
Insurance News Net’s article “5 Ways Life Insurance Eases Post-Divorce Estate Planning” provides us with five ways life insurance can help you in the event of a divorce:
Have money for divorce-related expenses. If the divorce is contested or includes child custody issues, the proceedings be quite long, maybe months or years. As a result, your attorney’s fees could be hefty. Those with an established permanent life insurance policy can take withdrawals or loans from the policy’s cash value to help pay expenses. If the policy is designed effectively, you won’t have to liquidate other assets or take money from your estate designated for beneficiaries.
Protect your income post-divorce. Your income can change significantly after a divorce, especially if one spouse was a stay-at-home parent. They may get alimony payments to help make up the difference, but if the payor unexpectedly dies, the lost income can create a lot of stress and financial hardship for those left behind. Permanent life insurance on the paying spouse can help provide coverage and replace income lost, if they pass away.
Preserve your estate post-divorce. Life insurance can also provide funds to pay off existing debt held by the deceased spouse. This also can eliminate the need to liquidate other assets from the estate that would have gone to the surviving spouse or other heirs. Take withdrawals or loans from the policy–tax-free, if the policy is set up correctly–and you can effectively plan your legacy, even if your ex-spouse hasn’t been financially responsible.
Ensure that children get a fair inheritance. If you have children from a previous marriage, it may make sense to provide for them through life insurance, rather than passing their assets to a new spouse first. In the alternative, you can provide for your new spouse through life insurance and leave the estate to the children outright or in a trust. With either option, dividing how you leave assets to biological children and a new spouse in a blended family, can eliminate stress and bad feelings, especially if the new spouse has children of their own.
Help fund college or other expenses for your child’s children. Protecting the lives of both parents with permanent life insurance allows you to make certain that the expenses for the children are addressed. Therefore, if the former spouse is responsible for paying medical expenses, college expenses, or other costs for the children, life insurance can provide needed funds, if that spouse passes. Permanent life insurance with cash value can also provide funds during the insured spouse’s lifetime (if cash isn’t readily available) to pay college tuition or help adult children repay student loan debt.
You should also look at permanent instead of term insurance. Term insurance may be less expensive, but permanent insurance can accumulate cash value that can be drawn from the policy, while the spouse is still alive, as well as providing a death benefit. You may want to also see about adding riders to customize your policy. With a permanent life insurance policy and a long-term care rider, you have the ability to accelerate the policy’s benefit while you’re alive to pay for long-term care costs. This can put to rest some of the concerns for divorcees, about who will take care of them if they can’t take care of themselves.
A carefully planned permanent life insurance policy can help you protect yourself, your income and your estate throughout your lifetime, even if you experience divorce.
Reference: Insurance News Net (November 5, 2019) “5 Ways Life Insurance Eases Post-Divorce Estate Planning”