Life Insurance Rates for a Divorce Settlement Due to Child Support

Scott Thiltgen Scott Thiltgen
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We have a saying down here in Texas, “Paying alimony because of a divorce is like putting your money on a dead horse”. In reality the dead horse still wants whats coming to them whether you are dead or alive. Come on its not like we have been put through the wringer already and all you want to do is put distance between you and your ex but if you have young children or unfortunate enough to live in a state that requires alimony this will be near impossible.

Now a smart ex will demand that and write it in the divorce settlement that in case of death that the child support or alimony be insured due to your untimely demise from accidents, long term illness to committing suicide because you can no longer live without your ex. Lets go back to your wedding. It was wonderful and everyone had good time. You started a family and had children and even bought term life insurance to protect your family and life was good.

Well as the years go by you drift apart to the point you can not stand each other. I am talking War of the Roses divorce. So now you have to work out all the details from visitation rights to making sure the child support will be paid whether you are dead or alive. Now you say hey I am already paying for life insurance. Well we call this a life changing event and need to revue your life insurance plan. That term life insurance that you are currently carrying is a 10 year term life insurance and you have had it for five years. Problem is that your plan will end in five years but you have a 2 year old and need a plan that will last until they are eighteen.

Now as much as you may despise your ex you still love your children and really want to make sure they get a good start in life and even though it means making your ex the beneficiary and possibly the owner of the policy if they have a lawyer that is worth their weight in salt. Now you are asking yourself well why can I just name my kids beneficiary. Well the problem is that the insurance company will hold the money until your kids turn eighteen. So now your ex wife does not have the money to raise your kids until eighteen and if you give an eighteen year old two hundred thousand it will be gone in two years or even kill them.

So depending on your current plan odds are its not enough or last until your obligations have been met. Well the best and most cost effective way to do this is with term life insurance. And remember when I stated that if the lawyer was worth their wight in salt they would demand that the ex would be the policy owner. Well you ask yourself why? Well its because of two things. One to prevent you from changing the beneficiary and then the fact that they will receive all nonpayment notice’s if you decided not to pay the premium.

So as you can see you will still be tied to your ex for years after the divorce and making that premium payment each month or annually will be a constant reminder of the past but at very least knowing that your kids will be taken care of. Your only hope is when you die your ex does truly do the right thing and use the money to take care of the kids.

Now if you do not trust your ex and truly want to make sure the kids get the money they need and can afford it you need to look up an irrevocable insurance trust. You can state in writing how the money is distributed and can name some one you can trust to be the executor to make sure your wish’s are met. The irrevocable life insurance policies trust is established through the grantor’s life. The beneficiaries associated with the trust are often household members of the grantor/spouse, children, grandchildren, spouses of children and grandchildren. The trust is funded with a life insurance policy from the grantor. This might be a current policy which the grantor gifts towards the trust. Unless the policy is paid up, the trustee will have to pay the annual premiums. The trustee could do this with all the cash income earned by securities when you look at the trust (if any), but this might make the trust income taxable to the grantor. This result also occurs in the event that policy is regarding the grantor’s spouse.

In order to prevent this dilemma, the grantor usually makes annual transfers of money towards the trust so the trustee will pay the premiums. Of course, these annual transfers are gifts. The gifts would ordinarily be future interests where in fact the trust beneficiaries cannot start to “enjoy” the policy the moment the grantor-insured dies. Which means no gift tax annual exclusion can be obtained to shelter the annual cash transfers through the federal gift tax. In the event that trust beneficiary could possibly get a distribution of the insurance coverage proceeds immediately after the insured dies and also the proceeds are paid in to the trust, the gift of this policy is a present of a present-day interest. Most trusts defer the beneficiary’s enjoyment for the proceeds, and thus the gift is of the next interest (unless a Crummey power is used).

Term life insurance coverage can seem tricky whenever you are going through a divorce. More often than not, couples are not thinking about maintaining their ex-spouses as beneficiaries to their life insurance policies. States consider spousal rights differently with regards to maintaining a life insurance coverage. Your attorney can give you more details regarding the insurance rights using your specific state laws. Listed here information provides a synopsis of how term life insurance is normally handled within the situation of divorce.

Recent divorce rulings have started to redefine a phrase life policy as community property, particularly in cases involving a terminally ill spouse. A court ruled that the benefit from a phrase life insurance coverage is highly recommended community property in a divorce in the event that policy was purchased throughout the marriage and both spouses contributed to your premiums while married. With a term life policy, the advantage just isn’t subject to change for the coverage period. If a court determines the policy should be considered community property, the surviving partner is awarded the entire benefit so long as she or he contributed to your premium payments. Once the initial policy term expires, however, if the policy is renewed, it is not any longer considered community property. Making changes to a policy that belongs to both parties can require a court order, and perchance an act of God if the ex is exceptionally stubborn.

To stop a tragedy such as this from occurring, many divorce settlements now include a stipulation that the party purchases a life insurance policies policy in order that children would be financially supported should anything happen. Instead of just one mom or dad having to support the children without the financial assistance, they gain a life insurance plan that will help ensure child support payments remain up-to-date before the child’s 18th birthday.

With your term life insurance policies, it’s important to add provisions stating that the beneficiary can not be changed or perhaps the policy cannot be permitted to lapse. Often times, bitter spouses stop paying or remarry and alter the beneficiary. Adding a provision that states if this occurs, the first beneficiary is eligible to an equal share associated with the estate help. Another option is always to go back to the divorce courts for a violation of the divorce decree.

If you have been already divorced and a life insurance policy had not been written within the decree, chances are slim that the courts would be prepared to change things years later. When your financial predicament changes, you are successful in enabling the court to incorporate an adjustment to the original divorce decree. Be warned you will must have solid evidence proving the requirement for a life insurance plan at this time.

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

Or, a provision could be included in the divorce settlement stating what goes on if the policy is permitted to lapse after a specific period or if the beneficiary designation is changed. In that case, the ex-spouse aided by the children, in line with the value of the insurance policy’s death benefit, may be entitled to area of the other spouse’s estate.

State laws vary, however with a revocable trust, the individual with an electrical of attorney typically cannot change the beneficiary designations on the life insurance policy. The trust can designate who the insurance policy owner wish to have the proceeds and just how it’ll be distributed. This way, insurance proceeds can be given both into the second spouse in addition to children from a first marriage.

Imagine if you don’t have children and you purchased your term life policy to aid your spouse pay off your home mortgage or pay off other debt in the event that you would die? You may want to discuss terminating the policy since its original purpose may no longer be a priority for you.If you’ve got older children dependent on you financially, another option might be to eliminate your ex-spouse as a beneficiary and change your children’s designation to primary beneficiaries.

These are merely a few directions things could go. Again, your options will change according to your divorce settlement and/or related court decisions. Educate Yourself regarding your Options to get Expert Guidance. Although term life is not considered a good investment in marital property like life time insurance with a cash value, it still requires attention when you’re dealing with a divorce.

Consult with your attorney and a financial planning professional regarding your options. There’s no one-size-fits-all solution, therefore it’s very important to discuss your circumstances with trusted experts who can cover all of the bases.

Who must be the owner of life insurance policies policies linked to a divorce settlement?To answer that question, first look at the intent behind the life span insurance policies. Often, life insurance policies is employed to safeguard the income of a spouse providing alimony and/or child support. The policy would insure the life regarding the spouse providing child support, and the beneficiary would be the spouse receiving the support. That way, if the providing spouse were to die, the life span insurance proceeds enables you to replace the lost income.

The question of ownership is an important one, because the owner can alter the beneficiary at any time. In the event that policy has cash value, the master has control of this as well. Consider that divorced spouses often remarry while having additional children. Non-custodial parents often lose contact and concern because of their former spouse, and maybe even their common children.

Most divorce courts will need the providing spouse to maintain a life insurance policy that will cover the support payments for however long the payments are supposed to be manufactured. However, enforcing this may become problematical as time goes by, especially given that there is absolutely no automatic method of being notified that payments are being made, or that no changes have been made to the beneficiary.

If you’re worried about enforcing life insurance coverage protection as part of a divorce settlement, ask your attorney in the event that policy ownership could be entrusted to you personally. Even if this means paying the premiums yourself, the premiums can always be figured to the support payments.

Your broker should quote you the best company, product, and price before you submit a formal application. You need to be in a position to go through underwriting feeling confident with an approval during the rate quoted.

To do this, he or she must per-underwritten with both you and identify most of the underwriting challenges you pose. Only then can probably the most competitive carrier be selected. Not only this, the selected carrier must agree to an interest rate assuming the information collected in underwriting will not contradict the preliminary disclosures. Prequalification sets the stage for longer than a reasonable outcome. In addition it helps underwriting move faster because any problems that could possibly cause delays have been addressed.

Your ex-spouse’s premature death or disability could be devastating and might bring about a loss of alimony, child support, college tuition, or property settlement payments. Life and disability insurance plans can guarantee why these payments will continue despite an unexpected loss or injury.

Federal laws regulating health and other types of federally regulated insurance may allow partners in a marriage to continue the policies after divorce. These regulations require that insurers continue coverage for as much as 36 months just before the insureds have to apply for independent coverage. Beyond meeting the expense of premiums with this interim period, it could be required to assess whether or not an old spouse should be able to be eligible for coverage at the end of the COBRA-mandated period.

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