Life Insurance and Divorce

November 24, 2020
| Meghan Freed

Among the decisions that get made in a divorce, sometimes spouses forget about life insurance. In the midst of resolving custody and parenting, alimony, child support, and property division, prioritizing life insurance sometimes falls by the wayside.

However, dealing with life insurance is an important part of the divorce process — especially when there are children.

Read on to learn more.

Purpose of Life Insurance in Divorce

Life insurance policies can serve three different purposes in divorce:

Property division
Securing alimony & child support
Income for alimony & child support determinations

One major purpose of life insurance is that it pays a death benefit if the insured dies while the policy is in effect. This is critical for securing alimony and child support. In addition, some types of life insurance also have a cash value that is subject to division during divorce.

Read: Health Insurance & Divorce

Life Insurance and Property Division in Divorce

There are many different life insurance products. The type of life insurance impacts how and whether Connecticut courts will handle it when it comes to property division.

Whole Life Insurance

Whole life insurance policies have a cash value that increases over time as premiums are paid. In addition, the policy owner often may borrow against the cash value. Or, the owner can surrender the policy, and take the entire cash value.

Universal Life Insurance

Like whole life, universal life insurance has cash value and courts can generally divide it in divorce. One difference between whole life and universal life is that universal life often has a cash value that varies based upon the market or interest rate.

Annuities

For purposes of property division, many annuities are most analogous to universal life. They often have a cash value that may (or may not) vary based upon the market rates or interest rates. That said, an “annuitized” annuity has no cash value.

Term Life Insurance

On the other hand, term life insurance has no cash value. It exists to pay a death benefit if the insured passes away while the policy is in effect. Term life is often used to secure alimony and child support.

Life Insurance and Securing Alimony and Child Support in Divorce

What happens if a spouse dies while there is still alimony or child support? Courts often secure alimony and child support with a life insurance policy.

Child Support and Life Insurance

Parents often secure their support obligations through life insurance. Some parents already have life insurance. Others, who are medically qualified, may obtain new life insurance coverage or increased coverage at the time of the divorce. Typically term life insurance is used for this purpose given its relatively low cost and the fact that the parent can secure it for a specific period of time.

Alimony and Life Insurance

Connecticut courts also use life insurance to secure alimony payments in the event of the death of the payor spouse. Even though even lifetime alimony ends at the death of the payor spouse, the payee spouse can receive a substitute for the alimony payments he or she would have received via life insurance proceeds.

Annuities, Alimony, and Child Support

Annuitization is the process of converting an annuity into periodic income payments for either a specific amount of time or the insured’s life. As we shared above, an annuitized annuity has no cash value and doesn’t come into pay for property division. Courts can include this income for purposes of determining child support or spousal support.

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