Life Insurance on Divorce

Divorce, Child Support, And Life Insurance

If you are paying child or spousal support, you’ll typically be required to obtain life insurance as security for your obligation to pay support.

Why Your Life Insurance Is Necessary

Your life insurance is needed because if you were to pass away tomorrow unexpectedly, your spouse might not have the income to sufficiently look after him or herself or your shared children. Your obligation to pay child or spousal support continues after your death according to section 34(4) of the Ontario Family Law Act. The Act says “An order for support binds the estate of the person having the support obligation unless the court provides otherwise.” This means that you will need to have a way to continue support even after your death, and life insurance is the only way to do this.

What The Law Says About Life Insurance

Section 34 (1) (i) of the Ontario Family Law Act is states that “In an application under section 33 (which deals with orders for support) the court may make an interim or final order requiring that a spouse or same sex partner who has a policy of life insurance as defined in the Insurance Act designate the other spouse or same sex partner or a child as the beneficiary irrevocably.”

You Need To Get Life Insurance

The courts have interpreted the law to be that you must get life insurance if you’re paying support, even if you don’t already have it.

Selecting The Amount Of Life Insurance You’ll Need

How much life insurance you’ll need will depend on the support payments you are required by law to make. What you decide to purchase is typically a matter of negotiation between you and your spouse. Family law lawyers have a life insurance calculator so that they can figure out how much you’ll pay in support so you can get the right amount of insurance to cover the responsibility even after your death. If there is a serious dispute between you and your spouse, it might be better to retain an actuary to calculate the actual amount needed.

Naming Beneficiaries

Many people want to name their children as the beneficiaries upon their death in this sort of situation. You can do this, but it’s not the wise decision. If you pass away before your children reach the age of majority then the proceeds from your life insurance would have to be released to the court instead of to your kids. This means your kids will have to ask the court to release money every time it’s needed. This is not only a slow process, but also an expensive one, given that there will need to be extensive involvement by lawyers.

Life Insurance And The Non-Paying Spouse

The spouse who is non-paying should also have a life insurance policy in cases of child support. While there is no law for this, it’s practical. If either parent were to pass away unexpectedly the other would have to raise the children alone. It makes sense that each parent would want the living parent to be able to afford to raise his or her children.

Life Insurance In The Divorce Settlement

In your divorce settlement, you’ll want to make sure that both parties can communicate with the insurance company to ensure that premiums are up to date and even make contributions to the account if your ex does not do so for some reason. You might also want to have the company contact both parties is a payment is missed or anything on the account changes.

Another common practice is to include a clause in the separation agreement that if the person dies without a life insurance policy in place, then his or her ex has a first charge on the estate for the amount of the required policy.

You might also want to add to your separation agreement a mechanism for reducing the amount of life insurance over time. As your children get closer to adulthood (in the case of child support) or the older your spouse gets (in the case of spousal support), the smaller your future support obligation is, so your policy can get substantially smaller. Also, there should be a provision in your separation agreement that when support ends, your can appoint a new beneficiary.

Your separation agreement should state that the beneficiary designation of your spouse’s life insurance policy is irrevocable, so that it can’t be changed later on without your knowledge.

If the life insurance is for the children, you might want to designate how the funds are to be used, and what will be done with any left over funds once they finish schooling.

Finally, if your spouse’s life insurance policy has a cash surrender value, you’ll want to put a clause in your separation agreement that will keep your spouse from borrowing against the cash surrender value. This will mean that upon your spouse’s death, the full value of the policy will be paid out, and not just a portion.

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