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What to do With Life and Health Insurance After Separation or Divorce

November 23, 2020

Life and health insurance are matters that are frequently overlooked in a divorce or common-law separation. Greater emphasis is placed on child custody and child support, spousal support, property division and adjusting to being single again. Yet, life and health insurance are important financial considerations that must be addressed in the divorce process.

Life insurance

Often, spouses purchase life insurance as a financial buffer for loved ones should they prematurely pass. Usually, the beneficiary is the other spouse. The pay-out or death benefit may be used to cover debts, care and maintenance of children, as well as living expenses for the remaining spouse.

Below are a few ways to address life insurance coverage upon divorce or separation.

Change beneficiary

A policy owner with no child or spousal support obligations may consider retaining insurance coverage but changing the beneficiary. A revocable beneficiary is easily changed by the policy owner; however, an irrevocable beneficiary cannot be removed without his or her consent.

If you are the beneficiary of a life insurance policy, you may want to check with the insurance provider to ascertain your status lest you unknowingly get removed from your ex’s plan.

If you have a child or spousal support obligations, you should retain the policy and make your ex-spouse an irrevocable beneficiary. This makes it easier for the ex-spouse to access the policy’s death benefit to cover child or spousal support income.

Policyholders in acrimonious divorces or separations, with only child support obligations, may opt to name a third party, possibly a family member or a family friend, or name the dependent children, rather than name an ex-spouse as a beneficiary. Naming minor children, however, requires the policyholder to establish a trust and name a trustee as the provider will not pay a death benefit to minors.

Protect future child and spousal support

Life insurance, whether held privately or through an employer, can be used to provide insurance against the loss of child support or spousal support caused by the untimely passing of a spouse with financial obligations.

Usually, in divorce settlements, judges make orders for spouses with financial obligations to have insurance coverage to protect the future child and spousal support income.

If a spouse with the financial obligation does not have coverage and has the means to apply, he or she will likely be asked to obtain insurance coverage. If unable to obtain coverage, the spouse may make a lump sum payment of the full or partial support amount. In the absence of means to pay a lump sum, he or she may make the receiving spouse the beneficiary of a registered savings plan.

A non-policy owner who receives spousal support may consider adding a clause to a divorce settlement stating that the life insurance beneficiary is irrevocable and the policy ought not to be allowed to lapse without his or her consent. Another option to mitigate against the lapse of a policy is to have it transferred to the spouse receiving a child or spousal support payments for him or her to pay premiums.

Surrender policy for cash value

Some permanent life insurance policies carry a savings component. This cash value is money that accumulates during the life of the plan from which a spouse may borrow or withdraw. Both spouses may decide to terminate the policy for its cash value and list among the marital assets to be shared.

Health Insurance

Health insurance offers little flexibility after a divorce or separation. You maintain health coverage once you own the health plan. However, you may be asked to keep your ex-spouse on your plan for as long as the plan allows or until any spousal obligation ends. Some insurers terminate spouses once a divorce is finalized. Others will terminate spouses immediately after separation.

Uninsured spouses may apply for health coverage privately or through their employers’ group health plans. They have 60 days within which to do so, after being removed from the insured’s health plan, to have their pre-existing conditions covered.

Children, for the most part, automatically retain health coverage and can remain on plans up to age 25 years, once they are enrolled in school full-time.

Do you need a Toronto divorce lawyer?

Navigating the divorce process can be an emotional and confusing experience, and making the right decisions during this time can seem an insurmountable task. Consider hiring a divorce lawyer to guide you to the best courses of action and represent the options that meet your future needs.

If you require a Toronto divorce lawyer, contact us at Baker and Baker Family Law. Our divorce lawyers are adept at navigating the divorce process and ensuring that your interests are represented. Call us to begin your journey to a satisfying divorce outcome.

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