Life Insurance – ‘Til Death Do Us Part

November 1, 2014
Written by Lynne C. Halem

The negotiations are finished; after all the time and effort spent in generating proposals and compromising on terms, a deal has been reached.  After a sigh of relief, not to mention a few pats on the back, another issue is raised.

• “What happens if you die?”  asks your spouse.  “How will your promises, actually your obligations, be carried out?  What will we do, then?”
  
• “Death is the end—just that—it is not an event I would plan for.” you respond.  “Why,” you add, “would I need to worry about fulfilling obligations if I am dead?” 

Despite the obvious logic of both sides of the argument, the simple truth is that many judges do expect you, the paying spouse or spouses, to provide monetary guarantees in the event of death.

Couples engaged in mediation often approach death protection in a matter-of-fact, but thoughtful manner.  The questions to be answered are driven by what the total monetary obligation is, as stipulated in your Agreement.  Are they some or all of the following?

• Child support/ alimony
• Children’s extraordinary and/or extracurricular expenses
• Additional, “non-alimony” support for your spouse (e.g., career counseling,noninsured medical and/or dental expenses, house repairs)
• Total health insurance commitment
• Children’s pre-college and/or your share of college costs
• Weddings and other major expenses for children

The total of each party’s commitments is tabulated with applicable adjustments taken for tax deductible payments such as alimony and for the present day valuation of the total sum.  This is the number that will constitute each party’s obligation—alive or dead.

Since it is also obvious that today’s financial obligation does not reflect your pledge in the future, many couples agree to provide for reductions in required collateral pledges over time.  Others agree to built-in reductions in the agreement, mandating specific sums at different intervals.  For example, life insurance may, if the parties so elect, be reduced annually, every five years,  or perhaps at the time of certain events (e.g., child’s high school graduation).  The list of conceivable adjustments is long, and limited only by the parties’ imagination.  And, too, there are couples who simply agree to maintain a specific amount of coverage without reduction for a specified period of time.

Financing the Life Insurance

Not irrelevant to the shaping of the terms for life insurance coverage is the cost of and availability of coverage.  Here more questions arise:

• Do you have access to term insurance through employment?  And, if so, is the coverage portable if you change jobs?
•  Do you have any pre-existing conditions, limiting or preventing access to insurance outside of employment?
• What is the present cost of the insurance?  Does it change over time?
• Who is liable for payment?  The insured?  The beneficiary?
• Should you create an insurance trust with a trustee overseeing the fulfillment of your obligations and the disbursement of any funds remaining after your obligations are met?
• Or, should you name your spouse as trustee or as beneficiary of your policies?

Not infrequently life insurance is too expensive to maintain for the full term of your obligations.  In the event of this occurrence, individuals may elect to pledge a combination of assets and insurance or even rely solely on an asset pledge.  In the latter case, the payer self-insures his or her financial obligations.

Can Mediation Help?

Mediation provides a forum conducive to structuring collateral pledges based on real dollar analysis of need. Together the parties compute the over time cost of their obligations and confront any obstacles interfering with the provision of total death protection.  This, as the rest of your agreement, requires thoroughness and thoughtfulness.  The need to protect your family in the event of your death is important, but so too is your ability to finance your pledge.  Obligations need to be met and individuals need to be self-supporting.  In the final analysis you need to devise a workable agreement based on an in depth consideration of each party’s commitments and ability to fund its cost over time.

Please Call Our Office For Answers To Your Questions – 781.239.1600