What to Do With Life Insurance After a Divorce

Divorce is a major life transition. Whether you’re grieving your marriage or looking toward a hopeful next chapter (or feeling both ways, depending on the day), divorce reshapes the life you’d planned and comes with a lot of emotional, logistical and financial considerations to process.

Everyone’s road to establishing secure finances after a divorce will look different. Your lawyers and financial advisors will help you understand what you’re entitled to and how to take care of your money. During this process, don’t forget to update your life insurance policy — it represents your needs and protects your loved ones.

Do You Keep Your Life Insurance Policy in a Divorce?

Dividing your assets in a divorce can involve closing or reallocating certain accounts. If you have a term life insurance policy, you have a contract with the insurance company promising to pay a death benefit if you die. Generally, a term life insurance policy isn’t considered part of your marital assets to divide in a divorce because there’s no cash value component.

If you have a permanent life insurance policy like whole life, however, you do have a cash value component to your life insurance. This is more likely to be treated as part of your marital assets. You and your spouse may both be entitled to half the value, and your divorce settlement agreement should cover how to allocate that money. If you end up surrendering the policy to cash out and divide the cash value, make a plan for how to replace any life insurance coverage you need.

How Divorce Affects Your Life Insurance Beneficiary

Many spouses list each other as a beneficiary on a life insurance policy. That’s why your spouse is usually the one who shares the financial load with you, and you’d plan to provide for them if you passed away. After a divorce, most people reconsider who’s the top priority in their lives. 

Where you live makes a big difference for life insurance after divorce. There are 26 states with revocation-on-divorce statutes on file. These mean that an ex-spouse loses beneficiary status on some assets, including a life insurance policy, even if you don’t get around to updating the beneficiary with your insurance provider. The intent of the law is to reflect a person’s probable wishes, since most people don’t want to leave their exes large lump sums of money. Some court cases have ruled that an ex-spouse’s beneficiary status was revoked, even though their name was still listed on the policy. 

If you live in a state that doesn’t have a statute to revoke beneficiary status on divorce, on the other hand, a life insurance policy may overrule instructions in your will. Even if you updated your will after a divorce, forgetting to update your life insurance as well can mean funds from the policy won’t go where you intended.

How to change your beneficiary

It’s important to review and update your beneficiary after a divorce to make sure your policy accurately reflects your current wishes. If you don’t have children together, there may not be a good reason for you to leave life insurance benefits for an ex-spouse. Even if you do have kids, you might prefer to set up a trust rather than giving the money directly to your ex, or you might choose to divide up the benefit differently to support your children plus a new partner, for example. And if you live in one of the 26 states that does revoke an ex-spouse as beneficiary, you may need to redesignate them if you want to leave your ex a life insurance benefit after all.

Generally, changing your life insurance beneficiary is simple. You can request a form from your insurance provider. Some insurance companies offer a beneficiary change form online, and in other cases you’ll need to complete and send in a paper form. It’s a good idea to review your beneficiary every couple years anyway, to make sure your policy is up to date.

How Much Life Insurance Do You Need After a Divorce?

Life insurance is meant to help cover financial priorities like debts, mortgage and your contribution to some living expenses or savings goals if you pass away. After a divorce, aspects of your lifestyle may change, and your finances change with it.

It may be hard to know at first what your new income, budget and living situation will look like. You might find it easiest to keep your current policy as it is until you feel more confident about what the next chapter of your life looks like. When you can, though, it’s smart to review your new finances. Do you have a different mortgage balance to consider? Will your current policy cover the amount you’d hope to put toward your kids’ education? You may find that your needs have changed enough that it’s worth looking for an additional policy to avoid a coverage gap.

Can you take out life insurance on an ex-spouse?

Most of the time, people buy life insurance to cover themselves. You can buy a policy on behalf of someone else and name yourself as the beneficiary in some cases, but not all insurance companies offer this option. At any rate, insurance providers look for “insurable interest,” which means being able to demonstrate that you’d suffer specific financial consequences if the person on the policy died. Divorce separates your lives, so you’ll often lose the insurable interest you had before.

The exception is if your ex-spouse is supposed to pay you child support or alimony. In some cases, especially if one spouse has alimony or child support obligations, a court may even require them to have life insurance. If you’re concerned your ex-spouse won’t comply or may let their policy lapse, you may prefer to take out a policy on your ex. The downside is that you’d be responsible for the premium payments (unless you can convince a court to rule otherwise), but you’d have control over the policy.

Divorce touches all parts of your life, but it can be an opportunity to rebuild a life that honors what you want and need. Life insurance can play a role to financially protect your plans and the people you love in a worst-case scenario. 

Make sure to update your policy so your life insurance isn’t stuck in the past—and that it reflects what’s important in your life going forward.

Fabric exists to help young families master their money. Our articles abide by strict editorial standards.

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