Gray divorce is defined as a divorce or separation that occurs later in life, typically at age 50 or beyond. Studies have shown that divorce rates for those aged 65 and older have tripled since 1990.  

This phenomenon often involves financial challenges far greater than those in earlier-life divorces. In general, there are often more assets to consider, but one in particular is life insurance. Life Insurance policies are valuable financial assets, not just protection vehicles, and should be valued as part of the asset review in divorce.   

KEY CONSIDERATIONS 

Is the coverage still needed?

If one spouse still needs income protection, or if the policy is intended to secure support obligations, such as alimony, pension sharing, or maintenance, the policy may still be essential. 

Is the insured still insurable?

In cases of gray divorce, health changes may be a factor to consider. If the insured is now uninsurable, the existing policy may be even more valuable to keep.  

If it is determined that the policy should remain in force, the divorce settlement should outline policy ownership, premium obligations, and beneficiary designations.  

Does the original policy need to be replaced?

In some scenarios, ownership and beneficiary structures become unworkable in divorce, generally when spouses do not want to retain any financial ties. In these cases, new separate policies might replace joint or survivorship policies.  

Life insurance should be valued before lapse, surrender, or any material changes are made to the policy.

Does the policy have value over cash/surrender value?

In situations of replacement or where there is no longer an economic need, neither spouse wishes to keep paying premiums, or the policy is underfunded, it may be decided to cancel the existing policy. Before the policy is lapsed, surrendered, or materially changed, it should be reviewed for fair market value.  

Especially in gray divorce, because the insured(s) are older and may have health issues, the policy may have significant value over the cash/surrender value if sold as a life settlement.  

A life settlement is the sale of an existing life insurance policy for more than the cash value and less than the death benefit. All types of Universal Life and Convertible Term policies are very attractive to institutional buyers in the secondary market.  

In 2022, life settlements generated 5x more than the cash surrender value on average.

Selling a life insurance policy should be explored when the need for coverage no longer exists, a life settlement can generate more than the cash value, or funds are needed for current financial needs. 

Representation is essential when considering a life settlement. Many resources advertising on TV are direct buyers looking to purchase the policy for the least amount possible. To guarantee the best offer, work with an independent, sell-side advisory firm whose fiduciary duty is to the policy owner.  

Ashar Group is a nationally licensed life settlement firm that protects the best interests of policy owners by creating a competitive policy auction to deliver the best value to the seller. Ashar Group does not sell life insurance, manage assets, or purchase policies. We are an independent resource for fiduciary advisors and their clients, specializing in life insurance valuation for planning purposes.