once my divorce is finalized, who should become my primary life insurance beneficiary?
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Asked April 25, 2015
After a divorce, untangling your financial ties to your former spouse can be difficult, but is also very important. Not only do you have to separate bank accounts, deeds and titles, and other financial obligations, you might also need to re-evaluate the named beneficiaries on your life insurance policies, as well as the policies themselves.
You can name anyone or anything as the beneficiary of a life insurance policy. Children are commonly named, but you could also name other family members, your best friend, your pet, or even an organization. To decide who to name as a beneficiary, consider how you would most like to see the proceeds used, and choose someone you feel you can trust to make that happen.
Another option is name a trust as the beneficiary. If you have minor children, this method will make it possible to guarantee they have everything they need growing up, but prevent your ex from taking over the money as his or her own. You can even name a trust to pay set payments for a specific number of years, or until the child reaches a certain age, at which time the policy would pay the remainder in a lump sum.
The idea behind life insurance is that it can be used to offset the loss of a loved one, and that loss can be financial or emotional. For that reason, anyone who is close to you is a potential beneficiary. What many people do not know is that you can name as many beneficiaries as you want, so you could literally slice up the proceeds so that everyone your car about gets some of the proceeds.
You may have life insurance policies that are redundant after a divorce, such as being the owner of a policy on your former spouse. If that is the case, you could reduce your costs by cashing in the policy rather than maintaining the policy on your ex. In fact, unless you have children or a court order decreeing that you have to maintain a life insurance policy, you no longer have an insurable interest in each other and should not continue to own policies on the other partner.
Answered April 27, 2015 by Anonymous