When a couple gets divorced, the person making support payments is under no obligation to protect the income they provide if they die. The estate of the deceased ex-spouse is also not obliged to continue any support payments if not stipulated in the original divorce agreement. However, many ex-spouses depend on support payments to live and if children are involved, can be left without the funds necessary to provide for basic needs.
Family law experts suggest including a clause in the divorce settlement making it mandatory the provider of support payments have a current life insurance policy. These settlements usually include a mandatory minimum coverage amount and often require the ex-spouse be named as the beneficiary. The life insurance policy should include enough coverage to provide the recipients of support payments with an income similar to that which they would have received before the payer's death. In the case where one spouse is paying to help support one or more children, life insurance arrangements should provide enough coverage to ensure each child is cared for until they are an adult.
The benefits of term life insurance
If you are purchasing life insurance to protect income provided to your ex-spouse, term life insurance can be an attractive option. Term life insurance policies are less expensive than most types of life insurance, and the rate is usually consistent for the entire term of the life insurance policy. If the policy is renewable, you can purchase a new one when the current one expires, without having to take another medical.
Since term life insurance is a cost-effective and simple way to purchase life insurance coverage, it is one of the most popular ways to protect payments made to an ex-spouse.
Choosing a beneficiary for the life insurance
The purchaser of a life insurance policy can specify who they want to receive the benefits when they die - even if the intended beneficiary is under the age of 18. This can be important if the supporter is concerned about making sure the proceeds of the policy go directly to the child.
If you choose to name your child as your beneficiary, you will need to set up a trust, governed by a trustee until the child is of a certain specified age. The money doesn't automatically go to your child on their 18th birthday. You can choose to extend the time the trust is in force until you think your child is old enough to be financially responsible.
If you are comfortable that your ex-spouse would properly manage any life insurance benefits, you could name them as the beneficiary, knowing they would still be in charge of providing for your child.
As the recipient of support payments, you may also want to name your ex-spouse as the beneficiary on your own personal life insurance policy as they would most likely become the primary caregiver of your child if you died.
For more information about beneficiaries, give the Kanetix article titled "Choosing a life insurance beneficiary: Your options explained" a read.