A life insurance policy can be an important part of a divorce or separation agreement. When parents divorce or separate, life insurance as security for child support can provide financial security for their children. The policy can also be used to maintain child support if the non-custodial parent dies.
Spousal and Child Support
In Canada, both spouses in a marriage are obligated to support each other and any children of the marriage. Spousal support is money paid by one spouse to the other. Similarly, child support is money paid by one spouse to the other to help support any children.
The amount of spousal and/or child support that is paid depends on several factors, including the spouses’ incomes and the needs of the spouse and child(ren) receiving support.
Payor’s Responsibility
It is the responsibility of the person paying child support, the payor, to ensure that his or her dependents can maintain their quality of life in the event of death.
Both spousal support and child support are typically paid monthly and are debts of the person who owes them. The person owing support must make monthly payments even if they cannot afford it.
The Role of Insurance
Ontario Family Law may choose to enforce the payor to acquire or maintain an insurance policy as an order of the court or as a condition in a separation agreement.
The payor would then be responsible for the support payments and incur the expense of insurance premiums. Based on the age, income, and health of the payor, this can be quite the expense.
Determining Ownership and Benefactors of Insurance Policies
When considering the use of life insurance to maintain the ability of the payor to provide support, ask these important questions:
- What are the advantages and limitations of designating the ex-spouse /surviving parent as the beneficiary of the insurance policy?
While it may seem reasonable to do so, consider the legal ramifications. For example, the policy is not exempt from creditors, bankruptcy and claims by new spouses.
- What are the advantages and limitations of designating the child or children as the beneficiary of the insurance policy?
A court appointed guardian can be appointed to oversee the financial responsibility. In most cases, this may be the ex-spouse. Any funds not used by the guardian towards care of the child is to be paid to the child upon reaching the age of majority in Ontario, 18 years old.
What are the advantages and limitations of placing the insurance policy proceeds into a Trust?
Determining the Right Insurance Policy for You
If you are considering getting a life insurance policy to provide financial security for your child(ren), talk to your insurance agent. Make sure the policy you choose provides the coverage needed and is properly funded. Here are a few tips to help you determine the type of policy needed:
- Consider the term of the support order. A fixed-term insurance policy for the life of the support term may be best.
- Determine the correct face value amount of the policy. A discussion with your legal representation or mediator will help define the amount.
- When more support payments are made, less insurance is needed for the payor to maintain. Revisit the amount of the face value every few years to reduce the number of premiums.
Conclusion
A life insurance policy can be important security for child support payments to protect your child(ren) financially. If you are divorced or separated with questions about life insurance policies and child support, talk to an attorney. An attorney can help you understand your rights and responsibilities under the law.
