Divorce is a difficult process to go through and there’ll be many tricky issues to navigate, including assessing your existing financial arrangements.
One matter you’ll likely want to review is any life insurance policies you hold.
A life insurance policy is designed to provide for your loved ones and dependants should you die.
In the event of a divorce, it’s likely that you’ll want to make changes to your life insurance.
Depending on the type of policy you have, you might consider transferring it, cancelling it, splitting it, or changing the beneficiary.
If you have an individual life insurance policy, then any changes you make will usually be straightforward.
Typically, you’ll need to change the beneficiary (the person who would receive the lump sum payout should you die) from your ex-spouse to someone new. Perhaps you want the money to go to your children, a new partner, or other relatives.
You’ll need to request a 'change of beneficiary’ form from your provider to do this.
Joint life insurance tends to work out cheaper than taking out two separate single life policies, so it’s a popular option for couples.
It pays out when one of the two people on the policy dies. After that, the policy automatically ends and there’s no further life cover for the surviving person.
When you divorce, you have a few options when it comes to dealing with joint life insurance.
Some policies include a ‘separation clause’ which allows you to split your joint policy into two separate policies if you divorce.
If your policy doesn’t offer this benefit, then you usually have two options:
Your provider may allow one of the joint holders to take over the policy. This is something you’ll need to agree to as a couple. One party must then sign over the policy to the other in a legal document. The party who takes over the policy becomes solely responsible for payments to keep cover in place. And the other partner will need to organise their own life insurance, if required
Once you’ve done this, you can each take out individual life policies catered to your new circumstances. Bear in mind that any new cover you take out may be more expensive if you’re a lot older or have any new health issues since taking out the original policy
This type of joint cover is designed to pay off the mortgage should one of you die. So, it will depend on what happens to the house after you divorce.
If you decide to sell the property, you can cancel the policy. You’re then both free to buy new policies when and if you buy somewhere new.
But if you come to an agreement that one of you gets to stay in the house and takes over the mortgage, then many providers will allow the person residing in the property to take over the life insurance policy too. Or they can choose to cancel the policy completely and buy a new one if preferred.
A life insurance policy will remain valid as long as you pay the premiums.
If you make no changes to your policy after the divorce, then the beneficiary will remain the same - most likely your former spouse. To change the beneficiary to your policy, you need to inform your insurance provider.
With a joint policy, you’ll need to decide with your ex how to proceed. If the policy you bought includes a ‘separation clause’ you can split it into two separate policies. Otherwise, you could transfer the policy to one party or cancel it altogether.
Similarly, with a mortgage life policy you may be able to transfer it to the person who remains in the marital home, or you can cancel it.
Yes, if you named your ex-spouse as the beneficiary when you initially took out the life insurance policy and neglected to change the beneficiary when you divorced, then your ex-spouse will be legally entitled to the payout.
To change the beneficiary on your policy, you need to contact your provider.
Death in service is a valuable benefit offered by some employers. It pays out a lump sum to a nominated beneficiary if you die while you’re on the payroll.
If you nominated your ex-spouse and have since failed to change it, then they would receive the money if you passed away.
If you don’t want this to happen, you need to contact your employer’s HR department to let them know you want to remove your ex-partner and nominate someone new to receive the benefit. You’ll usually have to complete a nomination of beneficiary form to do this.
It’s possible to take out life insurance on your ex if you rely on them for child maintenance payments, because there’s an ‘insurable interest’ present. A person has an insurable interest in another if their death would result in financial loss.
You’ll need to have the consent of your ex-partner to take out this type of policy and they’ll need to complete a medical questionnaire.
The policy would usually be set up as family income benefit and would pay out a monthly income to replace maintenance benefits should your ex die.
Similarly, the partner who provides financially for the children can take out this kind of policy themselves to ensure that their children wouldn’t have to face financial hardship should they die.