I’m leaving my spouse; can I leave my insurance policy also?

BY ANDREW STEWART

Divorce is a difficult situation for any family to go through. Should you be a member of the 41% of marriages that end in divorce and are required to pay child support, it’s not hard to find loads of information about if you’ll be required to maintain or buy a life insurance policy. When people separate, they often remain connected usually through co-parenting or ongoing child or spousal support obligations. So why will the courts mandate that life insurance be included in a separation agreement? Life insurance is needed because if you were to die tomorrow unexpectedly, your spouse might not have the income to sufficiently look after themselves and your shared children.

On the condition you are the one making the payments, your obligation to pay child or spousal support continues after your death according to section 34(4) of the Ontario Family Law Act. Should you not have life insurance, but could obtain it, and if there are sufficient financial means, the courts will likely ask you to apply for a policy. I can recall assisting a client who already had a life insurance policy in place prior to being married. They were requested to purchase another policy upon the divorce of their marriage to cover the needs of their ex and mutual children. A query of how much life insurance you will need usually depends on the amount of the support payments. Family law lawyers have a life insurance calculator so that they can figure out how much you will pay in support so you can get the right amount of insurance to cover the responsibility even after your death. For example, If the support payments are $10,000 per year in child support payments for about 20 years, then a good starting point would be $10,000 X 20 years = $200,000 of coverage.

The best option to go with would be term insurance. This is because child support obligations are likely to end at some point and the term you choose should be based on how long that financial obligation is likely to last. You can choose from any number of term plans depending on the insurance company you are buying it from. It’s best to try and match the time frame of the financial obligation, so there is no need for coverage at the end of the term, as renewal premiums would be significantly more expensive.

Many people want to name their children as beneficiaries upon their death in this sort of situation. You can do this, but it is not a wise decision. If it is child support that is being covered, the beneficiaries should not be the children, but the recipient of the payments and the beneficiary designation is irrevocable. Most policies are revocable by default, this means the owner can change the beneficiary without notifying the current beneficiary. If you are the current beneficiary, consider requesting the beneficiary to be irrevocable, so your signature is required before the beneficiary can be changed.

But what if you were never married or lived together and just have children together. It all depends on if support obligation is ordered by the court. The court indicates that careful consideration should be given to the amount of insurance that is appropriate. It should not exceed the total amount of support likely to be payable throughout the support award. Further, the amount of insurance should decline over time as the total amount of support payable throughout the award diminishes.  The obligation to maintain insurance should end when the support obligation ceases Katz v. Katz, 2014 ONCA 606 (CanLII).

Life insurance is almost always purchased to protect the ones we love and in divorce or breakup scenario it’s harder to have those same feelings. But remember it’s not about you or the feelings you may have. It is about doing what is in the best interest of those who are innocent and cannot fend for themselves.