Life Insurance and Divorce

The primary purpose for life insurance in matters of divorce is to ensure that payments for child support, college, health insurance, or alimony continue in the event that the obligor dies prior to the satisfaction of his or her obligations under the divorce or separation agreement.

The tricky part in purchasing the insurance policy is often calculating the amount of the policy (i.e. what is the value of one’s life). It is important not to be over or under-insured. Another issue that often arises is determining exactly what is it that needs to be insured (i.e. what is the individual’s obligation under the divorce agreement).

An example of this could be:

A couple is preparing for divorce. The mother is going to be the primary custodial parent. The couple has two children, ages 13 and 15. There is no alimony order; however, the father will be paying child support to the Mother in the amount of $600/week until the youngest child turns 23.

Let’s say both the mother and father have committed to paying $15,000 each year for college for each child.

The period needed for life insurance would be 10 years (as the youngest child is 13). The father’s obligation at a maximum would $120,000 for college ($15,000 per year x 4 years (twice for a total of two children) plus child support of $312,000 ($600/week x 52 weeks x 10 years).

The total amount for the death benefit for child support and college is $432,000 ($120,000 plus $312,000). However, you must keep in mind the value of current dollars for future interest as well as the decreasing amount needed as each week $600 in child support would be subtracted from the total death benefit.

Due to these factors I would suggest a 70% rule. This means that the life insurance amount suggested is 70% of the full amount needed. Under this scenario, I would advocate that the father should need to secure a 10-year term policy with a death benefit in the amount of $303,000 (432,000 x 70%).

Another consideration and potential offset against the amount of insurance needed will be the social security death benefit the children would receive if the father were to pass away before they reach the age of 18.

Using the example above, let’s say that the father had a social security death that will benefit the children in the amount of $1,800/month. This lowers the child support obligation from $31,200/year to $9,600/year. $31,200 ($600/week x 52 weeks) – $21,600 (social security death benefit $1,800 x 12 months) = $9,600.

Regardless of the situation, a good family law attorney should work closely with your life insurance agent to get the correct amount of insurance at a fair and reasonable price.