In this excellent blog posting, Roseann Vanella writes that life insurance policies are typically used as security to ensure that full child and spousal support payments will be made in the event that the paying ex-spouse dies.
Life Insurance to Secure Child Support Payments
If there are younger children at the time of the divorce, child support payments will continue for many years. The life insurance policy needs to have enough to compensate the custodial spouse until the last child turns 18 paid as a lump sum death benefit to the custodial spouse (for the benefit of the children).
Life Insurance to Secure Alimony
After a divorce, alimony may be required until the receiving spouse is deemed to be able to become self-sufficient or to receive the education and/or training necessary to become self-sufficient.
Who Should Own the Life Insurance Policy?
One of the most important details is which spouse should be the actual owner of the insurance policy. In some divorces, the paying spouse owns the policy, and provides frequent updates to the receiving spouse to prove the policy is still in force. To provide additional security, some receiving spouses insist on being the policy owners, with the paying spouse still making the premium payments as part of their support payment.