The Case for Term Insurance in Divorce Settlements

What is Term Insurance?

Term insurance is a type of life insurance that is designed to create pure life cover. Under a term insurance plan, death benefits are provided to the beneficiary in case of the untimely demise of the insured. As the name suggests, term insurance is created for a specific term of years. Mostly, term plans do not come with a maturity benefit. Your policy comes to an end if you, the insured, outlive the policy term.

Since term insurance is primarily purchased to offer benefits to the nominee in case the insured suffers an untimely demise during the policy tenure, it becomes important to understand what happens to the policy during divorce settlement, if the nominee was the spouse.

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Term Insurance in Divorce Settlement: Handling the Complexities

If you are worried about your term policy because of an ongoing divorce settlement process, rest assured that it will have minimal impact on your policy. However, to ensure a seamless, continued coverage, there are a few considerations you must be mindful of:

Update Your Beneficiary

Updating the beneficiary under a term insurance policy is possibly the first thought that comes to mind in case of divorce settlements. If your ex-spouse is named as a beneficiary in your term policy, you might want to update the beneficiary’s name from your ex-spouse to maybe your children or ageing parents.

Did You Know that you can easily update the beneficiary under term insurance by simply contacting your insurer?

Challenges of Being a Single Parent

Amongst others, one of the key challenges of divorce is becoming a single parent to a dependent child. In cases where one parent gets child custody, it becomes tough to bear all the financial expenses single-handedly. In such situations, it is important to re-evaluate your term insurance policy to see what kind of coverage will satisfy the needs of your child even when you are not around. The easiest way to enhance the coverage is to opt for another term plan.

Did you know there is no limit on the number of term insurance plans that you can have in your name? Just make sure that when you buy a new term, you inform your insurer about your existing policies.

Be Mindful of the Married Women’s Property Act

The Married Women's Property Act was introduced to protect both tangible and intangible properties of women. This Act allowed a married man to purchase a life insurance plan and appoint his wife as a nominee. If the policy was purchased under this Act, the death benefit automatically goes to the wife, and there’s possibly nothing that can be done about it.

A Reliable Plan of Action

Divorce settlement can be unsettling even in amicable situations. Drafting a reliable financial plan of action might be the last thing that you can think about while dealing with such an important life decision. Here are a few tips that can help you design a reliable plan of action for your term insurance policy:

• Make sure to update the name of the beneficiary if your ex-spouse is an existing beneficiary under the policy.
• Re-evaluate the coverage under your term policy to ensure it is in accordance with alimony and child support.
• If it is a joint policy, consider an alternative, either by withdrawing or deciding on an equitable settlement of the policy benefits.

To Conclude

Divorce settlements are never easy. While you and your spouse are busy dealing with the emotional aspects of it, make sure that your children and ageing parents don’t suffer. This is where a smart plan of action for your term policy comes into play. With an option to easily update your beneficiary, you can rest assured of continued benefits under the policy and secure the needs of your loved ones even when you are not around.

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