Life Insurance

"Do I need to get life insurance because of my divorce?"
If you are required to pay child support or spousal support, then you will normally be required to have life insurance as security for this obligation.

"Why do I need to obtain life insurance?"
If you were to pass away without having life insurance in place, your ex may not have sufficient funds to look after himself or herself, or the children. Note that your liability for child support or spousal support continues after you pass away. According to section 34(4) of the Ontario Family Law Act, " An order for support binds the estate of the person having the support obligation
unless the court provides otherwise."

"What’s the law regarding life insurance?"
Section 34(1)(i) of the Ontario Family Law Act states that: "In an application under section 33 [order for child support or spousal support], the court may make an interim or final order requiring that a spouse or same-sex partner who has a policy of life insurance as defined in the Insurance Act designate the other spouse or same-sex partner or a child as the beneficiary irrevocably."

"What if I don’t have any life insurance – do I need to obtain it?"
Normally, yes. Although the above section of the Ontario Family Law Act only speaks about designating an existing policy of life insurance, the courts have interpreted other sections of the Ontario Family Law Act and the Divorce Act to require a person to purchase a policy as security for child support. They would likely do the same thing for spousal support. The leading case on this issue is the Laczko case (1999, Brampton). In this case, the parties had settled all issues arising from their separation, except the issue of life insurance. According to the agreement, the husband had to pay the wife child support. The wife argued that the husband should obtain a policy as security for the child support. The husband disagreed. In this case, the judge found that the sections of the Family Law Act, Divorce Act, Federal Child Support Guidelines and Provincial Child Support Guidelines which permit a court to require security for child support should be interpreted to allow a court to be able to require a life insurance policy be obtained. There have been other cases that have found this as well. Normally in these circumstances, term life insurance is best.  This is because it is the cheapest.  As well, there are policies available that can be tied to child support or spousal support.

"How much life insurance do I need?"
This will obviously depend on how much child support and spousal support you are required to pay. It is normally a matter of negotiation – there are no guidelines in the law. Most family law lawyers have a life insurance calculator in which they can enter the amount of your child support and spousal support obligations, the ages of your children and spouse, and come up with a ballpark figure. If there is a serious dispute, it may be necessary to retain an actuary to calculate the appropriate amount.

"Can I designate my children as beneficiaries of my life insurance?"
Yes, but it is not a good idea. If you pass away before your children reach the age of majority, then the proceeds of your life insurance must be paid into court. This means that every time your children need funds from the proceeds, an application must be made to the court for the release of the funds. This can be a slow and expensive process.

"Should the non-paying spouse have life insurance?"
I think so, but the law on this issue of life insurance is not clear. The reality is that if the non-paying spouse passes away, the paying spouse will still need to raise their children, which is expensive.

"What items about life insurance should be in my divorce settlement?"
In your divorce settlement, you want to make sure that if you are the person who benefits from the life insurance, then you have the right to communicate with the insurance company to ensure premiums are up to date, and perhaps even make contributions if your ex defaults on payment of the premiums. Another common term in separation agreements is that if a person dies without the required life insurance policy in place, then his or her ex has a first charge on the estate for the amount of the policy.

You should also consider a mechanism for reducing the amount of life insurance over time. Obviously, the closer your children are to adulthood, or the older your ex gets, the smaller the amount of the policy needed. As well, once your support obligation ends, you should be free to designate another beneficiary.

You want to make sure that the beneficiary designation of your spouse’s life insurance policy is irrevocable, so that it can’t be changed later on without you knowing.

You want to make sure that you have the right to communicate with your spouse’s life insurance company so that you can find out whether the policy is properly in place. You may even be able to get the company to notify you if a premium payment is missed.

If the life insurance is for the children, you may want to set out how the funds are to be used before the children finish their schooling, and what will happen to any funds left over after the children reach, for example, the age of 25 years.

If the life insurance has a cash surrender value, you want to include a clause in your separation agreement prohibiting borrowing against the cash surrender value.

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