Life Insurance and Divorce: What Happens to Your Policy

Divorce is one of the most challenging life events—emotionally, legally, and financially. When there are so many difficult details to sort through, one often-overlooked area is life insurance.

Whether you're negotiating child support, dividing assets, or planning for a new financial future, understanding life insurance after divorce is essential.

From court-mandated coverage and beneficiary updates to handling different policy types, such as term life insurance vs. permanent life insurance, knowing your options can make all the difference.

Why life insurance becomes crucial during and after divorce

Life insurance becomes more than just a financial planning tool during a divorce. If you’re responsible for child support or alimony, life insurance can help you meet those obligations if something happens to you. Courts may include life insurance requirements in divorce settlements to help protect the financial future of children or a former spouse. This can also preserve assets or secure some peace of mind for both parties.

Court-mandated life insurance requirements

Court orders in many divorces—especially those with minor children or dependent spouses—often include a requirement for one party to keep a life insurance policy.¹ These policies are typically designed to secure future payments of child support or alimony.

Here’s what the requirements can look like:

• The coverage amount is often equal to the total value of expected support payments.
• The duration of coverage typically lasts until the child turns 18 or the support obligations end.
• The ex-spouse or a trust may be designated as the beneficiary to ensure the funds reach the intended party.

What happens if the policyholder can no longer get insurance? In these situations, the court may consider alternatives like requiring existing policies to remain in force, transferring ownership of those policies to the dependent spouse, funding a trust, or adjusting the terms of financial support.

Updating beneficiaries after divorce

Failing to update your life insurance beneficiaries post-divorce is one of the most common and costly mistakes people make. If your ex-spouse is still listed and you pass away, they could legally receive the death benefit, even if your divorce settlement says otherwise.

To avoid this:

• Review and update your beneficiaries immediately after divorce.
• Consider naming a trust if your children are minors.
• Double-check any group life insurance provided through your employer.

Understanding life insurance beneficiary rules after divorce can help prevent unintended outcomes. Some states automatically remove ex-spouses as beneficiaries upon divorce, while others do not. If you live in a state that automatically revokes an ex-spouse's benefits, and you still wish for your ex to receive the death benefit—for instance, to provide for minor children or replace lost income—you’ll need to rename your ex-spouse as the beneficiary after the divorce is completed. In all cases, it's best practice to review and update your beneficiary designations to ensure they reflect your current intentions.

Handling existing life insurance policies

What happens to your existing policies after divorce depends on the type of policy and your divorce agreement. You have several options:

• Maintain the policy as-is if you still have a need.
• Transfer ownership to your ex-spouse, especially if they are paying for or benefiting from the policy.
• Cancel the policy if it’s no longer needed and not court-ordered.

Ownership matters. The policy owner controls the beneficiary and has the authority to make changes. Be sure to clarify these things:

• Who owns the policy?
• Who pays the premiums?
• Who is the beneficiary?

These decisions are foundational when managing life insurance after divorce.

What about policies with cash value?

Permanent life insurance policies—such as whole life or universal life—can build up cash value over time, making them subject to division in divorce settlements.

Here are some ways it might be handled:

• The cash value may be divided as a marital asset.
• One party might take full ownership while compensating the other with other assets.
• Policy loans or withdrawals may need to be repaid or considered during negotiations.

After the divorce, it’s important to review how this policy fits into your new financial picture—whether to keep it, change it, or take distributions.

Term vs. permanent policies post-divorce

Term life insurance is often a practical solution post-divorce because of its affordability and flexibility. It’s ideal for covering court-mandated obligations and protecting dependents for a defined period.

At United of Omaha Life Insurance Company, our term policies include built-in convertibility, allowing you to switch to permanent coverage without a medical exam later on. Permanent life insurance may be more suitable if you have lifelong financial responsibilities or want to build cash value over time, adding a unique asset to your portfolio that can generate tax-free income and provide tax-free death benefit protection for 10, 20, or more years.

Each option serves a different purpose, and a financial professional can help you decide what’s right for your next chapter as you navigate divorce.

Get needed support during a divorce

Divorce proceedings can be emotionally and financially draining. During a divorce, you may have to review your assets, including bank accounts and investments, to determine their worth and how to distribute them. It's easy to understand why life insurance needs are often overlooked during this period.

If you have life insurance, which could be considered a marital asset, you may need help to evaluate how best to proceed with coverage after divorce. Your beneficiaries may need to be updated. You may no longer afford your premiums given your new financial circumstances.

At Mutual of Omaha, we understand that life changes, sometimes in unexpected ways. That’s why we offer more than just policies. We provide guidance and solutions tailored to your needs. Submit your information today, and a financial representative will contact you to help assess your insurance needs during or after a divorce.