Atlanta Financial Blog
Should I Maintain Life Insurance on My Ex-Spouse? How Much Should I Purchase and How Do I Make Sure it Stays in Place?
August 1, 2018
The primary purpose of life insurance is to fill a financial “gap” that you might face upon the death of someone you depend on financially. While the need for life insurance is generally obvious with a married couple, many people overlook the need for life insurance on an ex-spouse. If you receive alimony and/or child support, life insurance can provide critical protection if your former spouse were to pass away. A well-constructed settlement agreement will address this need and generally require the former spouse to maintain the coverage at his or her expense. The amount of coverage needed can be calculated by your advisor to ensure a funding amount that will cover any outstanding obligations.
So let’s assume your settlement agreement requires your former spouse to keep life insurance coverage, how can you make sure it stays in place? Ideally, your agreement should require that you be named as the owner and beneficiary. As the owner, no changes can be made to the beneficiary without your knowledge and approval. Alternatively, at a minimum your agreement should require that you receive duplicate policy notices, so that you will be informed if the policy is past due, lapses or a beneficiary change is made.
If your agreement didn’t require your former spouse to carry life insurance for your benefit, is there anything you can do now? Obtaining the coverage yourself is a possibility since you have a legitimate insurable interest, but the insured would obviously need to agree to be underwritten for the new coverage. Discuss your concerns with your advisor to assess how much exposure you have and to discuss strategies for shoring up this important risk.
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on December 20, 2019. With all of the discussion in the news around the political uncertainty, impeachment, and the looming trade war, one of the largest changes to retirement savings laws in recent years was passed with very little fanfare. However, some of the changes will be significant. I have tried to highlight what may impact the majority of our clients and readers.
The Act has a lot of positives such as simplifying rules and making 401k plans potentially available to more workers, pushing back the RMD age, and allowing contributions to IRAs past age 70. The negative impact I see is the elimination of the stretch IRA which is a clear move by the government to raise tax revenues by forcing money out of inherited IRAs sooner. I will discuss in more detail below, but this should be a time to review beneficiaries and discuss whether any change in your legacy planning should be made in response to the new laws. What do you need to pay attention to?
A few months ago, I saw a sale sign in front of my neighbor Gina’s house. She’s lived on my street even longer than I have, so I was surprised that she was selling her home. I bumped into her a week later at the supermarket and asked her where she was planning to move. She told me (with some regret) that she was downsizing to a less expensive house. The alimony payments she’d been getting from her ex-husband had ended last year, and she hadn’t prepared for the loss of that income. She soon realized she could no longer afford to live in her home.
I’d like to believe that everyone understands the value in a year-end review of their personal finances. Statistics that I’ve seen indicate that over half of people who make resolutions indicate a change to household finances and saving money is a priority in the new year1. What is a bit of surprise to me is that so many put off (or neglect all together) actually reviewing their finances before year’s end. My conclusion: one of the biggest deterrents is the time it takes to get things organized.
When it comes to being successful with money, strong organization will empower you more than anything else you can do to take control of your finances moving forward. With my personal and professional understanding of the challenges of this process, I’ve put together an 8-step checklist to get your finances organized, take inventory of where you stand, and ultimately get you ready to close the books on 2019.