When handling issues such as asset division or child related issues, life insurance can easily be overlooked during divorce mediation; however, this does not make it any less important. Especially when the couple has a child or children, life insurance protects the financial interests of all parties.
If the owner of the policy wants to revoke certain beneficiaries, they should contact their life insurance agent. Keep in mind that although less common, some policies will not allow changes in beneficiaries. It is advised that if a party is the moneyed spouse and there is a child, life insurance policy should not be revoked as money collected from it could be the financial support for that child in case of death of the spouse. If this parent owes child support and passes away before they finish paying, the child is still entitled to that amount.
If a parent does not want to make their spouse the beneficiary, they can select their child as the beneficiary. The money will be withheld until they turn eighteen, however. A trustee could be named the beneficiary as well, including in the policy that all of the money goes into child support. This stipulation is suggested for those that do not want to make their spouse the beneficiary as giving an eighteen-year-old a life insurance payout is an overwhelming responsibility for a young person.
It is also helpful to understand the three different kinds of life insurance policies one could take out. The best policy for each party varies and each policy needs careful evaluation to determine which is the best fit for the individual case. The three types of policies are: Term, Whole Life, and Universal.
Term insurance lasts for only a certain amount of time, typically no more than thirty years. This is a more cost-effective type of insurance but once the term ends, the coverage ends.
Whole life insurance lasts a lifetime but is more costly than term insurance. Unlike term insurance however, whole life insurance builds over time. This means that the value of the policy increases until one’s departure. If they acquire this policy at a younger age, the cheaper the premiums (they typically don’t change) will be and the more valuable the policy will be.
Universal life insurance, like whole life, is a lifelong policy that builds overtime. With universal life insurance however, premiums can be paid whenever one wishes to, and at any amount. The downside is if payments stop, the policy could be surrendered, or its coverage amount could be changed.
When the couple understands all the possibilities life insurance can offer them, they discuss what they want with their divorce mediator. The mediator can help explain the benefits of insurance for each individual case to help the couple determine if they want to take out a life insurance policy, and for how much.