Life insurance? Postnups? What do these two things have in common? They’re both ways to protect yourself and your spouse (and potentially some other third parties) in the event of the unthinkable. There are several ways to address life insurance in a postnup, including requiring one spouse to take out a policy in favor of the other spouse, protecting life insurance payouts from a third party, and listing any existing life insurance policies. Let’s get into all the details you need to know about putting life insurance in your postnup agreement.
Ways to address life insurance in a postnup
When we talk about life insurance in postnups, there are several different possible ways to address this topic:
Requiring your spouse to get a policy in your favor
One way to include life insurance in a postnup is to require your spouse to take out a life insurance policy, with you as the beneficiary, and for a certain agreed-upon amount. For example, the clause might say something along the lines of, “Spouse A agrees to take out a life insurance policy for the benefit of Spouse B with a death benefit amount of $50,000 by [date].” If an existing life insurance policy is affected by this clause, the postnup should also address what will happen to that policy.
Remember, adding a clause like this does not mean that a life insurance policy has been created—it simply requires that one spouse take out a policy by a certain date. You cannot create a life insurance policy through a postnuptial agreement, but you can require someone to take one out.
Protecting life insurance payouts from third parties
Another way to address life insurance in a postnup is to protect life insurance payouts from third parties. For example, if one person is set to receive a life insurance payout from a parent, sibling, or other person, they can ensure that such life insurance payouts are protected in the event of a divorce. You can ensure that any inheritances, including life insurance payouts, are your separate property in the postnup, which means that it is not divisible in a divorce.
Addressing existing policies in financial disclosure
Another way to address life insurance in a postnup is by simply disclosing any existing life insurance policies. In a postnuptial agreement, there is a process required called financial disclosure, which mandates that each spouse share all of their income, assets, debts, and inheritances. This includes life insurance. Both spouses should disclose any life insurance policies that they own and also that they may be a beneficiary of.
For example, if John is a policyholder of a life insurance policy for the benefit of his daughter, Jane, he should disclose this to his spouse. In addition, if John is the beneficiary of a life insurance policy owned by his mother, Mary, then he should also disclose that, as well. Yes, this should be disclosed even if it doesn’t involve the spouse.
Why? It’s because financial disclosure is meant to put the other spouse on notice of all relative financial information involved with the relationship. They can’t fairly negotiate the terms of the agreement without understanding everything that is involved.
Why do people include life insurance in their postnup?
You might wonder why people typically include life insurance clauses in their postnup. Here are some reasons why couples might want this in a postnup:
Financial security
One obvious reason that a couple may add life insurance requirements for the benefit of the other spouse is financial security for the surviving spouse. For example, if one spouse dies, the other spouse will be taken care of through the life insurance death benefit (which was ultimately required through the postnup). So, it’s a way to secure financial security.
Peace of mind
With financial security comes peace of mind. And maybe it’s not the financial security aspect that brings peace of mind, maybe it’s knowing that your life insurance payout from a parent is protected. Whatever the case may be with your life insurance clause, having it written in “stone” can reduce anxiety about the future.
Protecting children from previous relationships
This is HUGE in blended families (families with step-parents, step-children, and half-children). A postnup can ensure that both spouses are aware that children from a prior marriage are provided for through a life insurance policy.
Estate equalization
If one spouse has more assets, requiring a certain death benefit life insurance policy can help balance things out for the surviving spouse, preventing resentment or disputes among heirs. For example, adding a life insurance clause that requires Spouse A to take out a policy for the benefit of Spouse B in an agreed-upon amount can ensure that Spouse B is taken care of in case Spouse A dies.
The bottom line on life insurance in postnups
So, there you have it, folks. There are three main ways to include life insurance in your postnup: requiring one spouse to take out a policy in favor of the other spouse, protecting life insurance payouts from third parties, and listing any existing policies in financial disclosure. People address life insurance policies in their postnup for financial equity, peace of mind, and protection of spouses and/or third parties. If you have any questions about this, you should reach out to a qualified attorney who can assist you in adding life insurance to your postnup. Happy planning!
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: Nicole@Helloprenup.com
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