Silver divorce and life insurance settlements: Navigating a new landscape

By William Scott Page

When a marriage breaks up, most people don't immediately think about life insurance. After the initial shock of marital dissolution and the actions taken to start dividing up a lifetime of assets, life insurance becomes just one more piece of a divorce puzzle. However, it's becoming increasingly significant as we begin to see more “silver divorces” involving couples that are older than 50.

In 2017, the Pew Research Center reported that divorce rates for those over the age of 50 had doubled since the 1990s, and the divorce rate for those 65 and older had tripled between 1990 and 2015. More people over 50 are divorcing than couples in their 30s are. The increases in silver divorces have as much to do with changing demographics and the longevity of seniors as anything else. The statistics about the number of marriages that fail have been steady at about 50% for the past 50 years. That hasn't changed, but what we're seeing is more older couples ending their marriages.

When we think about divorce, we often imagine a fairly young couple with young children. For them, splitting up the life insurance isn't a factor in their divorce. But with the silver divorce, life insurance a much more significant consideration.

What contributes to a silver divorce?

Empty nester couples seem to be at high risk. After kids are grown and move out for college or to start their careers, couples often grow apart, even after 20-30 years of marriage. They begin to embrace new hobbies and start looking at the next chapter of their life. While one spouse might be interested in being more adventurous in their senior years, their partner might have become more prone to stay home and be more sedentary. This is driving major change.

The financial problem is that divorce is more expensive the older you get because seniors who divorce have less time to pay off debt and recoup any losses they might have during the divorce. The earning potential of seniors often is much lower as well, particularly if they've already retired.

What this means is that the division of assets becomes more complicated but also more crucial, and with a senior couple, life insurance policies may be major assets. So, for example, if a divorcing couple has a whole or universal life policy with a cash value, they're going to have to split the value of that policy. This is where a life settlement comes into play.

Seniors in this situation who are over 70 need to take a hard look at a policy appraisal to see if that insurance policy could be sold in the secondary market as a life insurance settlement. In all cases where a settlement is available, the settlement value will be higher than the cash value of the policy. As a result, the couple will have more money to split if they do a life settlement than if they merely cash in a policy.

Look at the life insurance market value

In addition, silver divorces involve baby boomers, which is the most highly insured generation of all time. More likely than not, a senior couple will have some form of life insurance policy in force. Instead of letting the policy lapse after a divorce, they must look at its market value via a policy appraisal. Even a term policy could be converted to a whole life policy and then sold in the secondary market. Something that once was thought of as having no value, particularly for a young couple, could have tremendous worth for a senior couple.

Agents and advisors who are dealing with clients going through a silver divorce must take a hard look at their clients’ life insurance policies. They may have an opportunity to not only get more money for their clients but also turn that settlement into a better financial product such as an annuity or long-term care policy – or invest it so that it has the ability to generate some income in the future.

Proceeds from a life insurance settlement can also be used to do many things that seniors may want for their grandchildren, such as funding a college education, helping pay for a wedding or assisting with a down payment on a house.

Silver divorces are becoming increasingly common, and life insurance settlements are becoming more significant. Agents and advisors dealing with clients going through a silver divorce need must take a hard look at their life insurance policies.

Wm Scott Page, is a life insurance policy appraisal expert, published author and CEO at policyappraisal.com and WeBuy75.com. He may be contacted at [email protected].