I Google searched Divorce and Life Insurance on Google to see what was written. Third from the top was an article written in 2005 on the American Bar Association webset reviewing the legal ramifications and giving an overview of the types of life insurance. The authors gave a good name to plain old Universal Life, calling it Conventional Universal Life, as a separate category to either Guaranteed Premium Universal life or Variable Universal Life. The life insurance agent’s role isn’t discussed that much.
Here are some thoughts, short of a more formal analytical article, on life insurance going through the gauntlet of divorce from a life insurance agent’s perspective. The “Who’s on first?” question revolves around ownership of the policy. Everyone involved must understand that the owner can change the beneficiaries of the policy at any time. To avoid the wayward husband changing the beneficiary to his new fiancée, the ex-wife should be the owner or better yet devise a spell-it-all-out life insurance trust.
What type of new policy to set up will depend on the situation. Let’s say the father has two children ages 7 and 9. A 15 year term protects the youngest, one hopes, to college graduation day. It’s best to put in some padding for a 5 year+ college plan, so a 20 year term in this example would be more appropriate. But would the father’s financial obligations end in all contingencies? What if a child is subsequently disables by a health condition or accident? A guaranteed UL, fixed rate for life, would be the answer, though the husband probably will balk at the greater expense. Well, remember term life insurance has a conversion to permanent option, which offers a plan B, but for most companies the price and options are determined at the time of conversion, and a few carriers have taken a cold hard look at their conversion options and cut them back during this recession. So conventional term conversion leaves too much open to the realm of contingency. Who knows what’s going to happen in the next 15 to 20 years. 2010 brings an answer! Genworth and West Coast Life have come out with Term UL products that set a fixed price for UL coverage at the end of the term. A known quantity lends itself better to this situation, and eliminates at least one mystery in a future, divorced from the past, that is full of divergent mysteries.
One reason to get a rock solid, there when you need him, agent like myself, involved in a cooking up a divorce style policy, is that a good servicing agent will stay involved in making sure the policy is paid. Payment by the insured, who’s off in a new direction, for the owner, the ex, may require a bit of bridge tending. The owner should get a 30 day grace period notice, but also the agent and brokerage will be notified. A good servicing agent will act as the policy’s guardian angel.
A Guaranteed UL’s (G-UL) with lapse protection is probably the best product for those more affluent divorce cases, a conventional UL or VUL could go careening off, and a G-UL has a fixed premium, which lends itself more to a two party agreement. It may not be best in all situations because other UL options, the younger you are, may be better. Setting G-UL coverage to an age past what anyone can expect to live, say age 121, is advisable. Setting the coverage period to end at age 90,95 or 100, does not shut the door to a centenarian opening.