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How may a divorce affect a life insurance policy?

| Jul 5, 2021 | Divorce |

Life insurance policies purchased during your marriage may reflect valuable assets and also classify as marital property. Whether your policy is term or whole could determine how the court divides it under New Jersey’s equitable distribution law. 

As explained by Money magazine, a term life insurance policy generally has no current cash value. Since the policy’s financial asset does not pass on to your beneficiary until after your death, it may classify as your separate property. Your ex-spouse may not have a claim to it without some negotiating. 

How may a whole life insurance policy affect a settlement?

Term life insurance policies typically end within 10 to 30 years because they cover an accident resulting in death during a temporary period. Whole, universal, annuity or indexed life insurance policies, however, do not end while its policyholder continues paying its premiums. 

Unlike term policies, these other types of life insurance plans could act as an investment. By paying a policy’s premiums, it generates “cash value” and a court may require you to divide it fairly with your ex-spouse. You may pay a fair share of the policy’s current cash value or “trade” it for another marital asset. 

When may I need to purchase a new policy?

You may consider a new life insurance policy depending on your family’s needs after a divorce. If the court orders financial support for your children, including a policy’s premiums may factor into the amount of the support payments when adding your kids as the beneficiary. 

New Jersey’s divorce laws may require dividing life insurance policies fairly between both spouses. The type of policy you carry may determine how it affects the outcome of a settlement.