What you should know about dividing life insurance

On Behalf of | Jan 18, 2022 | Divorce

When it comes to property division, most of the focus is on the house, cars, retirement accounts and other big-ticket items. However, life insurance policies purchased during a marriage may also be marital property.

How is life insurance divided during a divorce?

Term life insurance

A term life insurance policy provides death benefits for a set period that is usually between 10 and 30 years. Term life insurance has no cash value while the policyholder lives and is not treated as a marital asset during divorce.

Whole life insurance

Whole life insurance policies do not expire unless the policyholder fails to pay the premiums. These policies accumulate a cash value that may be a marital asset. Life insurance policies are not divisible. Typically, the divorcing spouses negotiate an exchange of assets based on the cash value of the policy. For example, if the cash value is $100,000, the spouse who is not keeping the policy may request to receive stock certificates with the same value. Alternatively, the couple can choose to cash out the policy and divide the proceeds.

Life insurance for children

If the divorcing couple has children, there may be a need to maintain a life insurance policy or take out a new one to ensure that minor children are financially protected if one or both parents die.

In some cases, it may be easier to maintain an existing policy than to obtain a new one. In these cases, the two spouses may negotiate who will pay the premiums on the policy after the divorce.