In California, the property acquired or earned by either spouse during the marriage, is considered community property. California law mandates an equal split of community property (division of property). While many people are aware that items like houses, cars and other physical property must be divided during a divorce, they forget about life insurance. Life insurance can be a community asset, which is divided based upon the type of coverage.
Term Life Insurance
Term life insurance gives the policyholder coverage for a proscribed period of time, specified by the specific policy terms. Term life insurance tends to be the least expensive type of coverage available, since it will only cover the holder for a limited period. In addition, the premium only pays for the insurance policy. Once the term ends, the holder may renew the policy, but the premiums tend to increase with each renewal, as the policyholder ages.
Permanent Life Insurance
Permanent life insurance tends to be more expensive than term life insurance, because it covers the holder for their entire life, provided they continue to pay the premiums. Most permanent life insurance policies have a set premium that will not increase over the life of the policy. The premium paid is actually greater than the cost of the insurance policy, so the insurance company will often invest the extras. Permanent life insurance offers the possibility of dividends and interest earned from the extra money that is invested. The policy holder may elect to invest the extra income, borrow against case value of the policy, or terminate the policy to receive the cash surrender value.
A person seeking permanent life insurance has several options:
Whole Life Insurance
A whole life insurance policy allows the policyholder to receive coverage during their whole lifetime, provided they continue to pay the premiums. The excess payments from the premiums continue to build as the policy goes forward. A policyholder may then borrow from the cash reserve or later surrender the policy and receive its cash value.
Universal Life Insurance
Universal life insurance provides a more flexible approach than traditional permanent life insurance. Universal life insurance allows a policyholder to change the amount of their insurance, adjust their death benefit, and, accordingly, adjust their premium payments. Universal life insurance policies cost less than a typical whole life insurance policy. Policyholders still retain the ability to borrow or withdraw money from the cash reserve.
Variable Life Insurance
Variable life insurance policies involve the investment of a policyholder’s cash reserve into stocks, bonds, and other securities. A variable life insurance policy’s death benefit is based upon the performance of the policy holder’s investments. Typically, the insurance company will guarantee a minimum return.
Variable Universal Life Insurance
Variable universal life insurance allows a policyholder to change the amount of their insurance coverage, thereby changing both the premium payments and death benefit. It also allows the policyholder to invest the excess money from their cash reserves.
Single Premium Life Insurance
Single premium life insurance policies require only one, up-front premium payment. Once the one-time premium is paid, the policy accumulates cash value and will distribute its proceeds to the policy’s beneficiaries.
Survivorship Life Insurance
Survivorship life insurance policies are single policies that cover two people for one insurance benefit. The policy pays out onoly after both of the policyholders die.
Typically, a term life policy is not community property, since its duration is so short, and would not be divisible in a divorce proceeding. However, any whole life policy that accumulates cash value can be treated as community property. As a result, if the policy is considered community property it will be considered divisible during the divorce proceeding.