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Divorce: insurance loose ends left by untying the knot (part 2)

In our last post, we talked about health and homeowner's insurance issues that Tennessee residents who are getting a divorce (or who have recently been divorced) need to be aware of. We're going to continue that divorce discussion today by addressing life insurance and auto insurance concerns as well.

Life insurance policies

Changing the beneficiary designation on your life insurance policy is important but it is not the only potential pitfall or issue to consider here.

One important question to ask is: "who owns the policy?" We mention this because life insurance policies are often purchased (owned) by one spouse while the other receives coverage via an attached policy or rider. The potential problem here is that the "attached" spouse can't name a different beneficiary unless the "attached" policy/rider is released.

If the spouse who owns the policy doesn't want to make that change -- either for a legitimate reason (the need for more money to cover the costs of raising children as a single parent) or out of pure vindictiveness -- the other will have to purchase a new life insurance policy of their own in order to name a different beneficiary.

In addition to that issue, you will also want to evaluate your life insurance needs and increase or decrease coverage as appropriate. And lastly on a related note, do not forget to change the beneficiary designations on work-related life insurance policies, 401k plans and similar types of accounts.

Auto insurance policies

Auto insurance policies are fairly easy to address. Number one, make sure that you have your own separate policy that you pay the premiums for -- as opposed to having your ex pay for it as part of the divorce settlement and running the risk that he or she will drop you from the policy or let it lapse.

Number two, make sure to either cancel the family policy you had together before the divorce or make sure your name is taken off of it. This will prevent you from being held liable for any accidents your ex may have in the future.

Source: Thomson Reuters, "How to untangle your insurance plans in divorce," Geoff Williams, Sept. 11, 2012

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