Life Insurance - How to Value and How to Divide

Life insurance is a financial product designed to provide a lump-sum payment, known as a death benefit, to designated beneficiaries upon the insured individual's death.  

Three common types of life insurance.

• Term Life Insurance - coverage for a specified period, typically 10, 20, or 30 years, with a death benefit paid if the insured individual dies during the term
• Whole Life Insurance - permanent coverage with a guaranteed death benefit payable regardless of when the insured individual dies, as long as premiums are paid
• Universal Life Insurance – like a whole life policy but it combines a death benefit with an investment component, allowing policyholders to build cash value over time

First: Gather the Facts

• Death benefit and premiums are typically considered more in cash flow analysis, the cash value should be included in the property division analysis, typically identified in the balance sheet and treated similar to a cash or investment asset
• Review documents, including policy statements, beneficiary designations, and premium payment records to assess value and options for division of policy

Second: Understand the Law

• Options in divorce
  • Could retain existing life insurance policies to maintain financial security for themselves or their dependents
  • Can sometimes be transferred from one spouse to another, ensuring that beneficiaries and coverage remain intact post-divorce
  • May be able to sell a life insurance policy for the cash surrender value or transfer ownership to a third party in exchange for a lump-sum payment, providing immediate liquidity and financial flexibility
  • May choose to cancel a policy and liquidate any cash value
• Life insurance policies may have tax implications if transferred or cashed out