Insuring Clients In Divorce And Second Marriage

Aug 17, 2010, By Alan Lavine

There’s a reason Joan Rivers has joked that “The second wife gets the biggest diamond.” Financial headaches often come with a divorce and/or a second marriage. The second wife, for example, may need to deal with the hubby sending money to his first wife and kids. There may be a court order for a divorcing spouse to buy life insurance to protect an “ex” and kids in the event of the death of the alimony provider. Plus, estate plans can be messy with second marriages. Litigation over marriage break-ups often lasts for years.

Data on life insurance held by divorcees or spouses in second marriages is scant. Nevertheless, a couple of major surveys indicate that those involved in a divorce or second marriage may need life insurance. Sixty-five percent of those engaged to be married for the second time said they wanted life insurance, based on a 2008 survey of nearly 10,000 baby boomers by Experian Research Services, New York.

Data from the U.S. Census Bureau reveal that those who get divorced and/or those who remarry for a second time are approaching peak earnings years. Yet, they are young enough to qualify for low-cost insurance policies. The average age for persons getting divorced for the first time is 33, while the average age for those divorcing a second time is 39.

Divorce settlements typically require the spouse who pays alimony, child support, children’s medical care, higher education costs and possibly mortgage payments, to carry insurance for as long as those payments are required. If the spouse required to make those payments already has a life insurance policy, benefits can be reassigned to the ex-spouse with children.

Through life insurance, if the spouse making those payments dies, income agreed upon in the divorce settlement may continue. Say the insurance is designed to cover child support. The policy can be set up to terminate when the children reach the age of adulthood, typically 18 or 21. If insurance is required for alimony, it can last as long as those payments must be made.

Divorce settlements typically require the spouse who buys the life insurance policy to notify the other ex-spouse—typically the one with the children—that the coverage is in force and premiums are paid. Typically, there also are restrictions on changing policy beneficiaries.

How the insurance is structured depends upon a client’s situation. The life insurance policy-owning spouse may need to make adjustments if circumstances change. Suppose an ex-spouse who is named as beneficiary on the insurance policy as part of the divorce settlement has remarried? The new couple may have two incomes to raise the children without a need for extra financial support. In that case, the policy owner may change the beneficiary on the policy.

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