Most divorcing couples focus on splitting assets and hammering out support payments. But too many neglect one major post-divorce reality: insurance.
You need to maintain sufficient insurance coverage whether you’re:
- relying on, or are responsible for paying support, or
- setting up life as a newly single person.
Why is it so important? Start by asking yourself these 4 questions:
1. What happens to your life insurance if your ex dies — or you do?
Yes, life insurance is part of financial planning for families. But it still needs to be part of the picture when you get divorced.
If you rely on support payments from your ex, could you manage if they died and the payments stopped? And if you’re the one making the payments, your obligations may not stop when you die. Without provisions made to cover future support payments, your estate could be tied up for a long time.
Make sure the spouse making support payments has a life insurance policy. And ensure that it names the other as the beneficiary to help cover spousal and/or child support. In fact, consider making it part of your separation agreement and name the beneficiary at the same time. To ensure no one changes the beneficiary later, make it irrevocable. Lastly, you should seek independent legal advice to help confirm that everything is handled correctly.
What if you get custody of your kids and can’t count on your ex financially? Then, you may want to own a life insurance policy and pay the premium yourself. Why? Because, if you don’t pay premiums, the policy can lapse, and you’d lose your coverage.
If you’re a single parent, life insurance is even more important. You can get a policy for yourself and pay the premiums. Doing so will help make sure your kids are taken care of if anything happens to you.
2. How much life insurance do you need after divorce?
How much life insurance you need depends on:
- how much support you or your ex pays, and
- the age and stage your kids are at.
Are your kids young? Then the amount of the policy likely needs to cover more than just the monthly payments. Consider covering all the big expenses that raising kids will incur over time, such as education savings.
If no children are involved, you likely won’t keep your ex as a beneficiary. Depending on your policy type, you may have options for what to do with it.
Knowing what’s best in a divorce situation can be tricky. This is where an advisor can help. You can find a Sun Life advisor if you don’t have one already.
3. What if you or your ex becomes too sick to work?
Whichever person is making the support payments must pay their own bills as well. So, employer-sponsored disability insurance might not provide enough coverage if one of you can’t work.
Do one of you stay home to look after the kids? Having the right insurance is still important to help make ends meet. If illness strikes or an accident happens to the stay-at-home parent, someone will have to look after your kids. A disability or critical illness insurance policy means you can pay for help.
Read more: Is critical illness insurance worth it?
4. How will you pay unexpected medical bills after the divorce?
Were you covered under your ex’s plan, or coordinate with your own workplace plan? Then you need to rethink some of your insurance needs.
Consider getting health insurance to cover the cost of big bills not covered under your province’s health insurance plan.
Another thing that’s easy to forget if you’ve had it for years is travel insurance. Without work-based coverage, you must now cover yourself when you go away. So, make sure you factor this into the cost of travel. This will help ensure you have protection in case you get sick or injured while travelling.
Not sure which insurance plan is right for you?
As a newly single person setting up house on your own, your insurance needs have changed. Be careful to review your policies and make sure you have the coverage you need.
A Sun Life advisor can help you understand the different products available. They can also explain how these products fit together and the protection they provide against specific financial risks. Find an advisor.
Do you already know what kind of insurance you need? Get a quote.
This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.