How To Get Life Insurance For Your Spouse’s Ex-Spouse And Why You Should

 

If you have a spouse who has an ex-spouse and shared dependents, such as children or stepchildren, you may face a unique financial challenge. What if the ex-spouse dies and stops paying alimony or child support? How will that affect your household income and budget? How will that impact the well-being and future of the dependents?

One way to protect yourself and your spouse from this scenario is to get a life insurance policy on the ex-spouse. This is a type of insurance policy that pays out a lump sum of money to a designated beneficiary in case of the death of the insured person. By having a life insurance policy on the ex-spouse, you can ensure that you and your spouse will receive financial support in case of their demise.

In this article, we will explain how to get a life insurance policy on an ex-spouse, what are the benefits of doing so, and what are the challenges and drawbacks that you may encounter. We will also discuss some of the alternatives and options that you may have besides life insurance. By the end of this article, you will have a better understanding of how to secure your financial future and that of your spouse and dependents.

How to Buy Life Insurance on an Ex-Spouse

Buying a life insurance policy on an ex-spouse is not as complicated as it may sound. However, it does require some planning and coordination between you, your spouse, and the ex-spouse. Here are the steps involved in buying a life insurance policy on an ex-spouse:

• First, you need to determine if you have an insurable interest in the ex-spouse. This means that you have a legitimate financial stake in their survival and would suffer a loss if they die. Generally, if the ex-spouse pays alimony or child support to your spouse or their shared dependents, you have an insurable interest in them.
• Second, you need to get the consent of the ex-spouse to buy a life insurance policy on them. This is because you cannot buy a life insurance policy on someone without their knowledge or permission, which is illegal and unethical. The ex-spouse will have to sign some forms and provide some personal information, such as their health history and lifestyle habits.
• Third, you need to apply for a life insurance policy with an insurance company that offers this type of coverage. You will have to choose the type of policy, the amount of coverage, and the premium payment method. You will also have to name a beneficiary who will receive the death benefit in case of the ex-spouse’s death. This can be either you, your spouse, or their shared dependents.
• Fourth, you need to wait for the underwriting approval from the insurance company. This is the process where they evaluate the risk of insuring the ex-spouse based on their age, health, occupation, hobbies, and other factors. They may also require a medical exam or a blood test from the ex-spouse to verify their information. Depending on these factors, they will either approve or decline your application or offer you different terms or rates.
• Fifth, if your application is approved, you need to pay the premium for the policy and keep it active until the end of the term or until the ex-spouse dies, whichever comes first.

There are different types of life insurance policies that you can buy on an ex-spouse, depending on your needs and preferences. Some of them are:

• Term life insurance: This is the simplest and cheapest type of policy that provides coverage for a specific period of time, such as 10, 20, or 30 years. The policy pays out the death benefit only if the ex-spouse dies within the term. If they outlive the term, the policy expires and no benefit is paid.
• Whole life insurance: This is a type of permanent policy that provides coverage for the entire lifetime of the ex-spouse, as long as the premiums are paid. The policy also builds up cash value over time, which can be accessed by the owner or the beneficiary for any purpose. The cash value grows at a guaranteed rate and is tax-deferred.
• Universal life insurance: This is another type of permanent policy that provides coverage for the entire lifetime of the ex-spouse, as long as the premiums are paid. The policy also builds up cash value over time, but at a variable rate that depends on the performance of the underlying investments. The policy offers more flexibility and control over the premium payments, the death benefit, and the cash value.

The amount of coverage that you need to buy on an ex-spouse depends on several factors, such as:

• The amount of alimony or child support that they pay to your spouse or their shared dependents
• The duration of the alimony or child support payments
• The age and health of the ex-spouse and the dependents
• The income and expenses of your household and the ex-spouse’s household
• The future goals and needs of the dependents, such as education, medical care, or inheritance

A general rule of thumb is to buy enough coverage to replace the income that the ex-spouse provides to your spouse or their shared dependents for at least until the last dependent is grown. You can use a life insurance calculator to estimate how much coverage you need.

Benefits of Having Life Insurance on an Ex-Spouse

Having a life insurance policy on an ex-spouse can have several benefits for you and your spouse. Some of them are:

• Financial protection: The main benefit is that you and your spouse will have a financial safety net in case of the ex-spouse’s death. You will receive a lump sum of money that can help you cover the expenses and needs of the dependents, such as housing, food, clothing, education, medical care, and more. You will also avoid any financial hardship or debt that may result from losing the alimony or child support income.
• Peace of mind: Having a life insurance policy on an ex-spouse can also give you peace of mind and reduce stress. You will not have to worry about what will happen to your spouse and their shared dependents if the ex-spouse dies unexpectedly. You will also not have to rely on the ex-spouse’s financial stability or responsibility to provide for them.
• Improved relationship: Having a life insurance policy on an ex-spouse can also improve your relationship with your spouse and their shared dependents. It shows them that you care about their well-being and future and that you are willing to support them financially. It can also foster a sense of trust and cooperation between you and the ex-spouse, especially if they consented to the policy.

Challenges and Drawbacks of Having Life Insurance on an Ex-Spouse

Having a life insurance policy on an ex-spouse is not without its challenges and drawbacks. Some of the potential issues or risks that you may face when having a life insurance policy on an ex-spouse are:

• Taxation: The premium that you pay for the policy may not be tax-deductible for you, unless you can prove that it is a business expense or a form of alimony. The death benefit that you receive from the policy may also be taxable for you, depending on how the policy is structured and who is the beneficiary. You may have to pay income taxes or estate taxes on it, which can reduce the net benefit that you receive.
• Beneficiary disputes: If you are not the beneficiary of the policy, you may have no control over who receives the death benefit in case of the ex-spouse’s death. The ex-spouse may change the beneficiary at any time without your knowledge or consent, unless they have made it irrevocable. They may also name someone else who has no insurable interest in them, such as a new spouse or a friend. This can create legal disputes and conflicts between you, your spouse, and the other beneficiaries.
• Policy cancellation: If you are not the owner of the policy, you may have no control over whether the policy remains active or not. The ex-spouse may cancel or surrender the policy at any time without your knowledge or consent, unless they have agreed otherwise. They may also stop paying the premiums or borrow against the cash value, which can reduce or terminate the coverage. This can leave you and your spouse unprotected in case of their death.
• Premium payments: If you are paying for the policy, you may have to bear an additional financial burden on top of your other expenses. You may also have to deal with some resentment or hostility from the ex-spouse, who may feel that you are intruding on their privacy or trying to profit from their death. You may also have to negotiate with them about how much coverage they need and how much premium they are willing to accept.

Alternatives and Options to Having Life Insurance on an Ex-Spouse

Having a life insurance policy on an ex-spouse is not the only way to secure financial support from them in case of their death. There are some other options that you may consider, such as:

• Alimony trust: This is a type of trust that is funded by the ex-spouse with assets such as cash, stocks, bonds, or real estate. The trust pays a regular income to your spouse or their shared dependents for a specified period of time or until the ex-spouse’s death. The trust can also provide a lump sum payment to the beneficiaries in case of the ex-spouse’s death. The trust can offer some tax benefits and asset protection for both parties, but it can also be complex and costly to set up and administer.

• Annuity: This is a type of contract that is purchased from an insurance company or a financial institution by the ex-spouse with a lump sum of money. The annuity pays a regular income to your spouse or their shared dependents for a specified period of time or until the ex-spouse’s death. The annuity can also provide a death benefit to the beneficiaries in case of the ex-spouse’s death. The annuity can offer some guaranteed income and tax deferral for both parties, but it can also have some fees and penalties for early withdrawal or cancellation.
• Court order: This is a type of legal document that is issued by a judge or a mediator during the divorce proceedings. The court order requires the ex-spouse to maintain a life insurance policy on themselves with your spouse or their shared dependents as the beneficiaries. The court order can also specify the amount of coverage, the type of policy, and the duration of the policy. The court order can offer some enforceability and accountability for both parties, but it can also be subject to change or challenge by either party.

Each of these options has its own pros and cons, and you should weigh them carefully before choosing one. You should also consult with a financial professional who can help you compare and contrast these options with life insurance and advise you on the best option for your situation.

Conclusion

Having a life insurance policy on an ex-spouse can be a smart and sensible way to protect yourself and your spouse from financial loss in case of their death. It can provide you with financial security, peace of mind, and improved relationship with your spouse and their shared dependents.

However, having a life insurance policy on an ex-spouse also has some challenges and drawbacks that you need to consider before buying one. You need to get their consent, insurable interest, and underwriting approval, as well as deal with taxation, beneficiary disputes, policy cancellation, and premium payments.

You may also have some alternatives and options to having a life insurance policy on an ex-spouse, such as an alimony trust, an annuity, or a court order. You should compare and contrast these options with life insurance and choose the best one for your situation.

If you are interested in learning more about how to get a life insurance policy on an ex-spouse and why you should, contact us today. We can help you find the best policy for your needs and guide you through the process of buying one.