Divorce: Effect on Insurance Policies

Divorce involves certain complex financial issues with insurance being probably the most complicated of all financial issues. Most insurance policies – car, home, health and property- are considered as assets. In case of a divorce, the court will consider who paid the premium for these polices and whether the premium was paid from separate funds or joint funds. This section will explain how the effect of divorce on insurance policies.

Post-divorce coverage

Federal laws that regulate health insurance as well as certain other federally regulated insurance may sometimes allow you to continue the policy even after your divorce. Some regulations require the insurance companies to provide a minimum of 36 months coverage before you are required to apply independently. When you are making the premium payments during the interim period, determine if your spouse qualifies for coverage once the period mandated under the COBRA expires.

Sometimes, your former spouse may not be able to independently obtain insurance coverage because of disability or certain pre-existing health problems. In such a situation, you should negotiate for adequate provisions to deal with the expenses once the period mandated under the COBRA expires. Ideally you have conditions attached to protect you from significant changes in the disability or pre-existing health conditions.

Many of us tend to carry long term care insurance or include insurance policies in our retirement portfolio. In case of a divorce, such assets must be accountable and must be divided equitably and provide continuous coverage. It is not just young couples who get divorced. Even old and aged couples who have lived together for many years are filing for divorce.

Life and disability insurance is of special importance in a divorce. The accrued cash value of life insurance policies must be accounted for at the time of dividing the assets in case of a divorce. However if you choose to surrender the policy and take the surrender value from the insurance company, your coverage will cease. Similarly if you take a loan against the policy, you will be responsible for paying back the loan amount and the coverage can also reduce by the amount of the loan. When continuous coverage is needed, this may not be acceptable. You may have to make other arrangements to account for the value of the insurance policies.

Divorce Settlement

Generally, if you want to continue an existing life insurance or disability policy, it must be included in your divorce settlement. However since the change of circumstances from the time the insurance was purchases, the coverage may be affected by the divorce. It can also affect your ability to keep the policy on the same terms. One question that arises in all divorce proceedings is whether the ex-spouse has any interest in the other’s spouse’s life or does the ex-spouse still have the ability and capacity to continue earning the same income. The law has changed over the years. Now the law recognizes that the ex-spouses may have continuing financial obligations one another and their children.

If the spouse who is paying child support meets with an accident or dies, it can affect the ability of the other spouse to meet the financial obligations associated with raising the children. This must be factored into a divorce settlement. Ideally one should carry sufficient insurance to cover such financial obligations in case the paying spouse meets with an accident or dies.

Beneficiaries

Both spouses should ideally purchase additional coverage and must ensure that they update the beneficiary details at the time of the divorce. The insurance coverage must match the requirements and expectations. Insurance companies will determine the coverage needs before issuing the policy. If you do not change your beneficiary at the time of the divorce, it can lead to a lot of problems later, including lawsuits filed by the insurance company to determine who is entitled to the proceeds of the policy. The insurance companies can file interpleader actions to protection themselves from having to pay the same policy more than once. The court will determine who is entitled to the proceeds from the insurance policy. Such lawsuits can delay the payment causing a lot of problems and can sometimes be costly.

Divorce Decree

The divorce decree must contain provisions about all the insurance policies. The provisions must be detailed and must provide specific details of each policy. This will prevent a lot of trouble and confusion once the divorce is finalized. The provisions must clearly indicate the intention of the spouses about the insurance policies and must be written in a manner a third person can easily understand.

Divorce law is complex. How it can affect your insurance policies will depend to a great extent on your specific circumstances. Talk to an experienced attorney for advice on how your divorce can affect your insurance policies. You can take steps to ensure that your intended beneficiaries do not have to face hurdles when it comes to receiving the benefits of the policy.

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