By: Jennifer R. Silva, Esq.
An ongoing life insurance obligation is an issue that is often addressed in a divorce case that involves unemancipated children and/or when there is an obligation for one party to pay alimony to the other. Life insurance is considered a “safety net” in the event that the insured party dies while he/she still has an obligation to provide financial support to unemancipated children or their former spouse. In many instances, a Divorce Agreement will outline the minimum death benefit that the insured party is required to maintain and the period of time that the insured party is required to maintain this policy. Also, the Divorce Agreement should specify the requisite beneficiary(ies) of the life insurance policy. If the purpose of the policy is to secure an alimony obligation, it would be appropriate for the former spouse to be named as the beneficiary of the policy. If the purpose of the policy is to secure financial support obligations for unemancipated children, often the other parent is named as the beneficiary for the benefit of the unemancipated children. Alternatively, some would prefer to have the life insurance proceeds paid to a Trust that is established for the benefit of the unemancipated children.
When determining the appropriate life insurance obligation, it is important to calculate the approximate financial support obligation(s) that the life insurance policy is established to secure. This will assist in the negotiation of reasonable life insurance requirements that do not require the insured party to be over or under insured. Also, as the years pass and the insured party’s overall financial support obligations are reduced because the emancipation of the children and/or termination of alimony draws closer, it may be appropriate to have a gradual “step-down” of the amount of coverage that the insured party is obligated to maintain. Finally, before a party agrees to maintain life insurance, it is important for the insured party to have a complete understanding of the premium cost associated with maintaining the requisite life insurance coverage in order to ensure that it is affordable to maintain this level of life insurance coverage for the appropriate time-period.
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