Why is Life Insurance Such an Important Consideration in a Divorce?

by Beverly Bird

In some cases, life insurance doesn't necessarily have any value as an asset in a divorce. For example, a term life insurance policy doesn't pay out or have any worth until the insured dies. Courts can – and sometimes do – order spouses to purchase or maintain life insurance policies as part of the terms of a decree, however.

Child Support

When a non-custodial parent dies, his child support obligation typically ends, so courts sometimes order the life insurance to secure these obligations. Typically, lump-sum death benefits are placed in trust for the children or otherwise set aside so that the custodial parent can draw off the balance to help provide for the kids after the non-custodial parent's death. If a non-custodial parent can barely make ends meet as is, generally, the court won't order him to pay life insurance premiums on top of child support. The term of the policy usually decreases as the children age, and it terminates when they reach the age of majority.

Alimony

Life insurance can secure alimony the same way it secures child support. Some states, such as New Jersey, may require that the spouse who receives alimony must pay the premiums, but a divorce decree may order the payor spouse to cooperate with physical exams and signing the paperwork. The payor spouse might also be ordered to name the receiving spouse as beneficiary of an existing policy. Other states, such as Florida, require that the insured spouse pay the premiums – but only if he can afford it -- and that the spouse receiving alimony must prove to the court that such a safeguard is necessary.