Expert advice on protecting your assets in difficult times
Life assurance, more than most things you buy, relates to the circumstances of your life. You buy life assurance to protect your family from financial loss stemming from your death. You tie the amount of your life assurance to the money your family will need to provide an income, pay off debts, put children through college and cover financial commitments.
But what happens to life assurance when you're about to dissolve your marriage? How do you deal fairly with a soon-to-be ex-spouse, yet still make sure you have coverage for the future? Is there a way to provide for adult children of a previous marriage without going broke -- especially if you have children through a second or third marriage?
Here are a number of considerations you should be aware of:
- Don't assume that your assurance agent or company knows about your circumstances. If you don't change your beneficiary, your former spouse may receive the proceeds of your policy upon your death. If the designation simply reads, "husband of the insured" or "wife of the insured," and there is no new spouse, the secondary beneficiary receives the proceeds.
- You may be able to transfer ownership rights of the policy as part of a property settlement or to ensure continuation of alimony payments. Your ex-spouse may not press as hard for more support or a greater slice of an ongoing pension if he or she remains the designated beneficiary on a permanent life assurance policy. Of course, you need to ensure that your policy remains a valuable asset by keeping up premium payments.
However, transferring an existing cash value policy (as opposed to a term policy, may carry with it the burden of federal gift tax, unless you transfer the policy prior to divorce. Be sure to discuss this option prior to the finalization of your divorce.
- Don't overlook the possibilities life assurance may provide for dealing fairly with children from your previous marriage. If you're paying alimony to your previous spouse and have a second family with your new spouse, adult children from your first marriage may sue your estate after you're gone if they aren't dealt with at least as fairly as the children from your subsequent marriage(s).
A permanent life assurance policy can be an immediate "estate replacer" to children from your first marriage -- it helps you replicate accumulated assets that you wish to pass on to the children of your first family -- but can't afford to without neglecting the needs of your new family. Essentially, you purchase a permanent life assurance policy on yourself and designate your adult children as beneficiaries. When you die, proceeds bypass the probate process and pass directly to your adult children. Your immediate spouse and any children from that marriage are left with your accumulated property and assets -- so you've provided for both families.
If you're contemplating divorce, don't forget the options you may have with respect to your life assurance coverage. Divorce is tough enough -- don't overlook the flexibility and security this valuable asset can provide..
About the Author
Matt McWilliams is one of the co-founders of HometownQuotes.Com, an online assurance quotes web site. He is originally from Pinebluff, NC and graduated from Middle Tennessee State University in 2002. He is considered an expert in the field of online assurance shopping and finding new ways to help consumers save money on their assurance. For more information visit http://www.hometownquotes.com.