No matter how savvy you are with your finances, there are a few ways marriage and life insurance intersect that you may have overlooked. In fact, you’ll want to make sure your marriage and life insurance don’t butt heads too much. It’s important to know you’ve done the right thing with your own policy regardless of how your own “happily ever after” turns out.
Term Life and Divorce Settlements.
If you’re going through a divorce, as a rule of thumb, you’ll want to insist you and your spouse each has enough life insurance to cover all child support and settlement obligations incurred in the settlement. Many settlements make term life part of the deal as a result, and this is something everyone should consider, particularly if they will be caring for children. Even if your ex misses payments on the term life from the settlement, you can still make them. If you do, you’ll have a claim against your ex’s estate for the amount you paid.
Turning that around, if you are the one who misses payments, and your ex pays them, your ex will have a claim against your estate. But this will only be true in the amount of the payments they make, and this is still better for you than if they had some larger, unspecified claim for unpaid support.
Try, Try Again—and Reevaluate.
When remarrying, make sure you reevaluate your life insurance. Of course you’ve probably changed your beneficiary; that part is easy. But many people also have a will naming their children as their heirs, especially after a first divorce. They don’t realize that despite what their new will states, their new spouse will have a claim on their estate.
You can avoid this issue by taking advantage of your life insurance. A life policy with your new spouse as the beneficiary, along with a prenuptial agreement, can satisfy your new spouse’s share of your estate. This will allow you to protect your kids’ standing in your new will. This use of insurance keeps it simple and separate for everyone.
Common Law—Still Covered?
If you live in a common law state, and enjoy a common law marriage, you might be surprised to learn your insurance coverage through your employer (including life) can be denied. The law says common law marriages should receive the same benefits as other marriages. However, any entities, like insurance companies, have the right to force you to “prove it” to their satisfaction. For many companies this means demanding proof of a ceremony before a judge. Because there is no government document that can automatically prove a common law marriage, insurers can make this their point of refusing your family their benefits. Learn what your options are before your family needs coverage.
As always, there’s more to life insurance (and marriage!) than meets the eye. Make sure you’re aware of the less-obvious connections between life insurance and matrimony; you’ll soon find you have optimal insurance at every stage of your relationship.
Karla Lant is a life insurance contributor on The Simple Dollar, helping everyday people understand and master life insurance issues and questions. Lant has dealt with related regulatory issues in her work as an attorney and has researched and published on life insurance and estate planning. She has also taught subjects related to life insurance as an adjunct professor – she is currently an adjunct at Northern Arizona University.Karla Lant on LinkedIn