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Going through a divorce is hard. Things are stressful and uncertain. The process seems like it will last forever. When children are involved, things are even more complicated. However, having a conversation to secure life insurance after divorce can be easy. Stress-free. Quick. Painless. Simple.
At Divorce Life Insurance, we understand the challenges that a divorce presents. Our founder, Ryan Smith, was a divorce attorney in the State of Tennessee for several years. His experience as a divorce lawyer and an insurance agent qualifies Ryan to help divorced individuals secure the proper life insurance.
We believe in making life insurance simple. After going through the challenging, hectic, and stressful divorce process, the last thing someone needs is a pushy salesman trying to push an unwanted product. That’s why we have developed a process where buying life insurance after divorce is simple, easy, and convenient. But before we get into that, let’s review the basics of life insurance.
First, let’s de-mystify the concept of life insurance. At its simplest, life insurance is insurance purchased to ensure that in the event of an untimely death, other loved ones will be taken care of financially. Typically, life insurance is meant to cover any outstanding debts, replace income, provide for children’s education, and cover final expenses. Life insurance is either temporary or permanent. Temporary life insurance is known as term insurance. Term insurance lasts for a specified period of time. Permanent insurance lasts forever, and can be structured in a few ways.
Term insurance lasts for a specific period of time, and is much cheaper than permanent life insurance. Think of term insurance like renting a house. You do not own the policy, but rather pay a specified amount for a specified period of time. It does not build any cash value. If the insured dies during the course of the term, then the beneficiary receives the face amount. However, if the insured does not die during the term, then the coverage ends.
The terms of term policies vary. The most common terms are 20 or 30 years. However, some term policies are 10 years. Also, some term policies can go all the way up to age 80, with increasing premiums.
The most common types of permanent life insurance are traditional whole life insurance, traditional universal life insurance, guaranteed universal life insurance, and indexed universal life insurance. All four types have certain things in common. First, they are permanent – meaning as long as the insured pays the premiums, the insurance remains in effect. Also, they all accrue a cash value within the policy.
However, there are some differences between the different types of permanent insurance. For traditional whole life insurance, the policy will accrue cash value based on the company’s dividend or interest rate. The cash value that can be accessed during the life of the insured. Whole life policies have a guaranteed death benefit, and fixed premiums that don’t increase with age. One of the downsides to traditional whole life is that the premiums are not flexible.
Like whole life insurance, traditional universal life insurance is a form of permanent insurance that accrues a cash value. The biggest difference between universal life insurance and whole life is the flexibility offered by universal life insurance. Traditional universal life insurance has flexible premiums, and often times an adjustable death benefit.
There is a minimum premium payment that must be made to keep a traditional universal life policy in force. There is also a minimum interest rate used for the cash accumulation in the policy. If the insurer’s portfolio outperforms the minimum interest rate, then cash accumulates at a greater rate. Also, if the cash value account in a universal life policy is not high enough to sustain the cost of the insurance, and the insured stops paying premiums, then coverage can end.
Guaranteed universal life insurance is similar to traditional universal life, except for a few things. First, premiums are set – not flexible. Second, guaranteed universal life policies do not accrue as much cash value as traditional universal life. Third, these policies have a no-lapse feature to ensure that the policy stays in effect – even if the cash has been depleted – so long as premiums are paid. These policies can be less expensive than traditional universal life, and are typically designed for people more interested in the death benefit than the cash accrual.
Indexed universal life insurance is a fairly new type of insurance. It functions similar to the traditional universal life insurance, but the interest rate for the cash value is tied to an index. The S&P 500 is a very common index used in IUL policies. These policies allow the insured to allocate what percentage of the funds to allocate towards a fixed interest rate, and what percentage to allocate towards the index. Growth in an indexed universal life policy is limited, similar to traditional whole life insurance or traditional universal life insurance.
Life insurance after divorce can change in a few ways. The typical need for life insurance – to make sure that a spouse and children are provided for – changes with a divorce.
It is important to consider changes to your life insurance after divorce. Frequently, life insurance is necessary to cover child support or alimony ordered by the court. This is to ensure that children or the former spouse will be provided for in the event of an untimely death.
The term of the policy is typically tied to the purpose of the life insurance. For example, if the children were two and four years old at the time of the divorce, the insured may obtain a 20 Year Term Policy to cover the child support payments. Then, once the children both turn 18, the insured would decide whether to continue the policy or to cancel.
Often times, the minimum term of the life insurance policy is specified in the court order. If there is an alimony obligation for a specified time period, then the life insurance term could be for the same time period. If there is an alimony obligation for the remainder of the former spouse’s life, then the supporting spouse needs a form of permanent life insurance, such as whole life insurance or indexed universal life insurance.