Three Ways Life Insurance and Marriage Intersect That You Didn’t Think About
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.
Bio
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
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I view life insurance as more than protecting my spouse against certain expenses. I see it as income replacement before we retire and perhaps into retirement too.
I always assumed I would drop my life insurance when my daughter is grown, but maybe not?
Very interesting. I think a lot of people overlook life insurance and will/estate issues. It might be a little morbid to think about those issues, but you don’t want to have these issues come up at the worst time so it pays to get your plan in order.
It was really hard when we sat down and made a will, but you have to, especially if you have a child. I don’t want the state or my extended family deciding what will and won’t happen, and I certainly don’t want anyone arguing.
I never thought of how life insurance and marriage could “butt heads,” definitely some interesting stuff in this post. I have always only thought of life insurance as a way of securing your family, never how it could come in conflict with marriage.
I hope I never have to find out.
We have some life insurance offered through our work but it is very minimal. We need to look into this further.
Unless you have children, I wouldn’t think you would need a ton right now.
I am so worried about a friend of mine due to will/estate issues. Her dad remarried and stayed married despite the marriage not working out. He recently passed away this week and I’m afraid that the wife is going to inherit the family home and the family lake house, despite the fact that he was planning to divorce. I am planning on seeing her soon to offer my support in any way she needs.
That would be a horrible thing to have to deal with after losing your parent, but I’ve seen things like this happen many times. I guess you always think you’ll get around to changing things, but you honestly never know when your time is up.
Life insurance is such an important topic that often gets overlooked. This is some great information on the nuances of situations I’m not incredibly familiar. I would imagine that there are numerous complications to common law marriages when it’s comes to money and other legal issues. It’s definitely important to consider these things ahead of time.
I would hate to have someone fighting over my stuff after I’m dead. It sucks to make a will or update a will, but I think I will always stay on top of it.
Great point about the coverage in regards to divorce. I remember that was an issue when my parents got a divorce and thankfully it was solved relatively easily.
Both my parents and inlaws are still married, but I’ve actually had family who came to blows at the funeral home because their mother’s last requests weren’t clear. Do you think we might just be a little redneck?
As someone who spend the past six years working in a funeral home, I can say that life insurance is absolutely essential….especially for people with kids! I have seen so many families struggle after not being properly covered.
This has nothing to do with this post, but we have one guy who owns all the funeral homes in our town, and he rides around on a motorcycle with no helmet all the time. What is the dude thinking?
Good point about protecting the children in case of a divorce, I wouldn’t have thought about that, but being left without child support could be a disaster.
I’m almost sad to bring points like that to light, but I guess it’s better to deal with it before you have to.
My wife had coverage when I married here but we changed providers so we both have life insurance policies. It’s important to us that we are covered.
If something were to happen to myself or Jim, we would want the other to have enough to pay off the house and live comfortably for a while if we needed to not work for an extended period of time.