One aspect of a divorce, child custody, or child support case that is often overlooked is the need for life insurance at the conclusion of a family law case. Life insurance is needed in many family law cases for a number of different reasons. In many states, judges can order life insurance to secure court ordered obligations such as child support, spousal maintenance / alimony, support for children with special needs, or college expenses. Preparation is the key to saving money and securing your children’s future and shows the judge that you put thought into the future. Having court approved life insurance is essential in many family law cases.
Court Ordered Life Insurance Reasons
Many reasons exist why a judge could order one (or both) spouses to obtain life insurance. Because life insurance is payable to another person at the death of someone, it might be needed to replace a lost revenue stream that might be ordered by the court from one spouse to the other. These revenue streams might be in the form of child support, spousal maintenance / alimony, or child-related expenses like medical bills or college expenses. Life insurance protects the spouse receiving support from losing what might be an essential revenue stream.
Life Insurance for Child Support
One of the most common reasons life insurance is ordered by a judge in a divorce or child custody case is to replace the loss of child support should the paying parent die. Without a life insurance policy in place, the court’s primary concern is how the parent receiving support will be able to maintain the child’s needs on his or her own. Judges in a majority of states can and do order parents that owe an obligation to pay child support to obtain court approved life insurance to make up for the loss of child support payments on death.
Life Insurance for Child-Related Expenses
Child related expenses can cover a wide variety of things such as extracurricular activities, sports, medical bills, and school costs. Life insurance is typically ordered by a judge when the need to pay a portion of these costs could be lot should one parent die. It is common for family law courts to order each parent to pay 50% of medical bills and even college expenses for in-state tuition. Court approved life insurance would offset the financial burden of only one parent bearing that responsibility.
Life Insurance for Spousal Maintenance / Alimony
Divorce can carry with it the responsibility to support your spouse for some amount of time. It might be only a short term, like a few years, or it could be 5, 10, or 20+ years. For cases where maintenance is longer than a year or two, the court can order the spouse paying spousal maintenance / alimony to obtain court approved life insurance to replace the alimony award should that spouse die. This is especially true in cases where there may have been a long marriage and one spouse was a homemaker, where the incomes of the two spouses are very different, or where one spouse has become disabled and is unable to work.
Different Types of Life Insurance
Life insurance policies are put in place so that a set amount of money is paid to someone when another person dies. There are two main types of life insurance available for people: term policies and whole life policies (whole life can be universal life, guaranteed life, or other phrases). Both have their positives and negatives and either might be better depending on the situation.
Term life insurance policies are typically a set amount of money to be paid at death if the death occurs within the set ‘term’ of the policy. A term policy might be for 10, 20, or 30-years and a monthly premium is paid to secure the policy. Term policies ae normally less expensive than whole life policies.
Whole life policies are different. A monthly premium is also paid to secure a death benefit to be paid but there is no term – the policy can last for the entire life of the person – beyond 30-years. Whole life also has an investment account attached to it, so it serves a form of retirement investing as well. Because of these two aspects (no end to the term and the investment aspect) whole life policies are typically more expensive than term policies. This might make it best for people with special needs children that need a policy to extend beyond 30-years.
How Much Life Insurance is Needed?
This is the question that varies the most, depending on the reason the court has ordered life insurance to begin with. If life insurance is ordered to secure a child support order, the judge might make it be an amount and a length of time to cover ad replace the remaining years of child support. For example, the judge could order that a parent with 1-child, 10-years old, should receive $1,000.00 per month in child support. That comes out to $12,000.00 per year, and times the remaining 8-years (until the child is 18 years old), equals $96,000.00. It would not be unrealistic for the judge to order a 10-year life insurance policy worth $100,000.00 in death benefits to be made. The amount of insurance proceeds that could go to the former spouse might even be reduced by $12,000 per year so that the ex-spouse doesn’t receive a huge windfall should a death happen near the end of the policy term.
For a case where maintenance is involved, a similar calculation as with child support might be used. The tough part comes into play when a long-term policy is needed for a child with special needs that likely needs financial support for decades. This is where a more expensive policy might come into play or where a whole-life insurance policy makes the most sense, as it will not expire after a set number of years. An experience divorce lawyer will know what route is best here and will help guide you into a court approved life insurance policy.
Getting a court approved life insurance policy either in place or setting things in motion is the best and most important step to take. Filling out an application for life insurance takes minutes and can allow you to approach your family law case with important things already in motion. Showing the judge that you have already taken an important step like this – without being ordered to do so by the court – can go along way to showing that you are a responsible person. Gaining the courts trust and respect goes a long way in determining the outcome of many family law cases. Get started and find out how you can secure your family and comply with the eventual court order and obtain court approved life insurance.