Monthly payments are easier to manage than a lump sum.
By Fraser Rideout (Ontario)
For as long as anyone can remember, life insurance in family situations has been motivated by love. That is, love between the life being insured and the beneficiary, and that is, of course, in normal family situations. For many decades the life insurance agent has sat at the kitchen table with the husband and wife, with young children playing close by, and performed all kinds of calculations to determine how much life insurance should be carried on each of them to provide properly for the survivors, should one (or both) of them die prematurely. Many times the volume and type of life insurance that is placed is as much a reflection of the love between these parents as it is the product of any formula.
Life insurance that is purchased after a marriage breaks down may be motivated by other noble factors, but it is fair to say that numbered among them you will usually not find love between the formerly doting husband and wife. Something has changed, and most of the time it is less than subtle. The love is gone. Both of them love the children, but often unholy acrimony has replaced holy matrimony, and evidently these people are no longer in love. The issues raised by this new reality can be condensed and identified much more easily than the solution, but it does exist.
Let’s begin with the most basic thing, and to save words and avoid ambiguity, let’s assume that the husband is required to pay support to the wife. How often have you heard “I’m not interested in leaving half a million dollars to her and her new boyfriend,” or “I’m not buying any life insurance for her…she’s going to get my group insurance and that’s good enough for her,” or “I’m already broke because of the amount of support I have to pay every month and I can’t handle any more expenses,” etc.? At the same time, the wife knows that final expenses will deplete the group insurance, and that there will be no estate left for distribution by the time things are settled. The permanent insurance that they had purchased on the advice of their financial planner when they were planning for a rosy retirement together was one of the first casualties of their marriage breakdown. In short, she and the children are at real risk of being left destitute if the husband dies without proper support life insurance.
What these people need at this time is a policy that does not pay out a lump sum should husband die; rather, one that will simply make monthly payments to the wife in exactly the same manner as he made those monthly payments during his lifetime. Of course, they would be guaranteed by a life insurance company so they would come on time every month. There would be no concern on the part of the husband of an unintended windfall, nor would there be any concern of a shortfall on the part of the wife. The insurance being placed should be reflective of the support arrangement and that means that it should be denominated in dollars per month for a specified term (or terms). There is no longer any need for a lawyer to guess at the amount or type of life insurance required for any support arrangement, and that is good news for all concerned.
Fraser Rideout is the founder of Toronto Familysure Corporation, which has been instrumental in the design and marketing of support-specific life insurance solutions since 1995.