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Common mistakes to avoid regarding life insurance and divorce

Divorce involves a number of important issues and concerns, and it is easy to feel overwhelmed with the many aspects that enter into the negotiation process. However, it is essential to keep in mind that the decisions made during this critical period can and will have lasting implications in regard to the future financial stability of all parties. Life insurance is one of the issues that must be dealt with as many Colorado couples divorce, and it is often specifically addressed within the divorce agreement.

Life insurance is usually required for an individual who is ordered or agrees to pay spousal support or child support to the other party. The insurance is required to ensure that the financial obligations of the paying spouse are covered in the event of that spouse's death. The spouse who is responsible for making alimony or child support payments is commonly required to obtain or maintain a term life insurance policy for the duration of his or her financial obligation to the other spouse.

However, there are a number of mistakes that can be made in relation to term life insurance. One is being underinsured. The solution is simple; make sure that the divorce agreement specifies the amount of life insurance that is required, and that the amount is sufficient to fully cover the financial obligations of the covered spouse. Another common issue is a lapsed policy that results when the premiums are not paid. A simple way to avoid this is to have both parties named on the policy as persons who will receive notice if the premiums are not paid.

Another concern for divorced spouses in Colorado and elsewhere is a changed beneficiary. This usually occurs after the divorce is long finalized and the covered spouse has moved on to a new marriage or has additional children. The best way to avoid such an event is to be named as the owner of the policy, which would prevent any unauthorized changes.

Source: Live Insurance News, "Life insurance and divorce- what to do with a term policy?" Chris Taylor, July 23, 2012

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