Harry and Sally live in Arizona. He’s 56 years old, she’s 58. They’ve been married 27 years, and now they’re calling it quits. In addition to the emotional pain, divorce means dividing up assets accumulated over the life of the marriage.
People naturally focus on houses, cars, retirement savings and other obvious assets when deciding who gets what. Less obvious but just as important — life insurance.
Older couples are splitting up at a faster rate than they used to. According to the Pew Research Center, divorce rates for couples in their 50s have doubled in the last 30 years. For those over age 65, the rate has tripled.
These are often couples who have amassed some wealth over time, and they are likely to have life insurance:
- It might be term policies purchased when their children were young because of the low premiums.
- It might be small amounts of insurance provided by their employers.
- It could be whole life or universal life policies purchased decades before as investment vehicles for college savings.
All of these policies represent potentially valuable assets to be divided up in the divorce settlement.
Life settlement brokers
Couples in the process of divorce should consult with a life settlement broker to help determine the market value of their life insurance policies.
A life settlement is the sale of an existing life insurance policy to a third party (someone other than the spouses) in exchange for a one-time cash payment. The third party receives the policy’s face value amount upon the death of the insured person. A life settlement broker can help estimate the price a third party might pay for a policy.
Life settlement brokers must be licensed by the insurance regulators in the states in which they operate. Check with the insurance department in your state if you need help locating a licensed broker.
Once the policy values have been established, there are several options, including:
- Let the policy lapse to save the cost of premiums.
- Leave the policy in force, with one spouse paying the premiums and the other remaining as beneficiary.
- Convert a term policy to a whole life policy, leave the beneficiary unchanged and have one spouse responsible for paying premiums.
- Convert a term policy to a whole life policy, sell that policy in a life settlement and split the proceeds.
- Use the proceeds from the sale of the policy to purchase new life insurance, an annuity, a long-term care insurance policy, or to invest in income-generating vehicles such as bonds or stock in utility companies.
- Invest the proceeds to fund grandchildren’s college educations, pay for weddings, help with down payments on first homes, or other personal use.
- Use the proceeds to cover uninsured costs from medical problems.
A divorce is never a happy occasion, and it is inevitably stressful for all involved. While older couples likely do not have to deal with child custody issues, they do have to equitably divide their assets, including their life insurance policies.
Working with a life settlement broker or professional life insurance agent can make that part of the division a little easier and help reassure both spouses that they are receiving fair settlements.
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