Life insurance can financially aid divorces and second marriages

By GAIL LIBERMAN

Secial to the Daily News

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There’s a good reason comedian Joan Rivers frequently jokes that “the second wife gets the biggest diamond.”

Divorces and second marriages can trigger massive financial headaches.

Life insurance, under certain circumstances, may help spell relief.

The average age for persons getting divorced for the first time is 33, while the average age for those who remarry a second time is 39, based on data from the U.S. Census Bureau. These ages generally represent peak earning years. Yet, they’re young enough to qualify for lower-cost life insurance policies.

Life insurance already is frequently used in divorce settlements to guarantee continued child support.

Term life insurance, which provides insurance protection for a specified term, may be used if the need is under 10 years, suggests Douglas Richmond, director of private wealth services for Lincoln Financial Advisors, Raleigh, N.C. “If (the need) is more than 20 years, permanent insurance can be used.”

Many, Richmond adds, opt for 30-year term policies.

Life insurance policies can be designed to end when the children reach the age of adulthood — 18 or 21.

How the insurance is structured depends upon your situation. Suppose your ex-spouse — named as beneficiary on the insurance policy as part of the divorce settlement — remarries and that newly married couple has two incomes? The life insurance may prove unnecessary. In that case, the policy owner may wish to change the policy’s beneficiary.

But this can prove sticky if the “ex” believes the insurance still is warranted.

Some attorneys suggest that a divorce agreement should prevent such policy changes.

Another option: An ex-spouse — with the children — can be named as the policy owner, and insurance policy premium payments can be factored into support payments.

Or, a provision in the divorce settlement might state what happens if the policy is allowed to lapse after a specific period or if the beneficiary designation is changed. Perhaps that ex-spouse with the children, based on the value of the insurance policy’s death benefit, may be entitled to part of the other ex-spouse’s estate.

Life insurance can help diffuse financial feuds triggered by second marriages.

A life insurance benefit might provide an inheritance to biological children while the second spouse and children from that marriage inherit other assets.

But life insurance also can prove costly and the financial strength of the insurer is paramount.

Plus, experts warn that you need to take extra care to protect that life insurance benefit — not only from possible estate taxes, but also for the children.

Take the woman who cut her sick husband’s biological children out of their inheritance by using her power of attorney to change his life insurance beneficiary to her name. Five months later, he died.

A revocable trust, estate planners say, might have avoided this situation.

via palmbeachdailynews.com