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Divorce, Estate Changes, and Life Insurance: When Selling a Policy May Help
By Saul L. Appel, CLU®, ChFC®
Life insurance is often purchased to protect a spouse, support children, fund an estate plan, or secure a financial obligation. Divorce and other major life changes can alter those needs.
After a divorce, ownership and beneficiary requirements may be governed by a settlement agreement, court order, trust, or state law. A policy should never be changed or sold until those obligations are reviewed. If the coverage is no longer required, however, a life settlement may provide an alternative to surrendering it or allowing it to lapse.
Estate plans also change when beneficiaries die, assets are sold, charitable goals shift, or estate-tax exposure is reduced. A trust may own coverage that no longer serves its original purpose. Increasing premiums can make the decision more urgent.
Before considering a sale, identify the owner, insured, beneficiaries, premium payer, and any collateral assignment. Obtain a current in-force illustration and review the legal documents that created the insurance obligation. An attorney should confirm that the owner has authority to act.
If the policy is sold, the current beneficiaries will no longer receive its death benefit. That trade-off should be compared with the cash settlement, future premium savings, and any remaining insurance needs.
This article is educational and is not legal advice. Consult a family-law or estate-planning attorney regarding your circumstances.
For a confidential policy review, visit Policy-Cash.com.
Saul L. Appel, CLU®, ChFC® | President, Appel Financial, Inc. | 50+ years experience