If you decide to divorce then you will need to review your life insurance policy; this will most certainly mean making changes to your current policy, and in some cases taking out a new one. It is important that you take time to understand the changes to your policy that may be necessary following a separation in order to protect the interests of your dependents.
When you divorce you cannot divide a joint life insurance policy. You can either cancel the policy or one of you can take it over. If you have a joint policy (which is common if you have a mortgage together) then if one of you decides to take on the mortgage they must subsequently take over sole responsibility for the life insurance policy. This would, of course, mean that one of you would be left without life insurance which could be a problem if you have children, or other relatives who depend on you financially.
If, after you divorce, you take on a mortgage with a new partner then you would need to take out a new life insurance policy. In addition, you may wish to consider taking out a policy to cover your ex-partner’s life if you are in receipt of child or spousal maintenance payments from them. You can choose between a policy that pays out a lump sum, or one that pays out a regular income for a fixed period of time; this is usually equivalent to the length of time that child maintenance or spousal support have been awarded.
You may be in receipt of death-in-service benefits from your employer. Most often, these benefits will be paid to your spouse or partner. Make sure that you change the recipient of this benefit if you no longer wish your former partner to receive it in the event of your death.
If you live in the UK the law states that when you are divorced, or your civil partnership is dissolved, all money and property left to your former partner in your will will no longer be issued to them. However, the rest of your will is still valid so you may wish to review its contents if, for example, you have left something to a member of your former partner’s family and you no longer wish to do so. Also, bear in mind that your will will remain valid until your divorce is finalised. Therefore, if your spouse or civil partner is the main beneficiary you might like to consider making an interim will whilst your divorce or dissolution is pending.
Recently, in the UK, the divorce courts have begun to stipulate that all financial assets are declared in a form known as ‘Form E’. Although monthly premiums may seem too small to be of concern at the time that the divorce takes place, the maturity value of life insurance products can cause problems many years later. Form E was introduced to make sure that all insurance policies are accounted for to avoid these types of problems later on.
When all insurance policies are divulged both parties need to decide which ones are worth continuing, and if so, by whom. If you are going through a divorce and have a number of shared assets then it might be worthwhile to seek the help of an independent financial advisor. He or she will base their advice on a number of factors including the age of the divorcing couple, their general health and the relationship between them. If, for example, a client had a joint life insurance policy with no investments involved, and was in good health, an independent financial advisor would most probably advise their client to cancel it and take out a single life policy.
Divorce is a difficult process, both emotionally and financially, and it is important that life insurance products are taken into account when assets are split between both parties. Although life insurance policies cannot be split, many can be taken on by one individual; although it can be difficult to decide which policies are worth maintaining and which should be cancelled. Professional advice from an experienced financial advisor can be invaluable during this time.
In addition to revising your life insurance requirements it is also important that you review any death-in-service benefits, and to revise your will if you wish to change any of the beneficiaries. Failure to amend or cancel life insurance policies when you divorce can cause bitter arguments later on, and can lead to you being significantly underinsured. Work out how much life insurance you need, taking into account your current circumstances, and take out a new policy if necessary.
Sadly, 40 percent of marriages now end in divorce. Experts predict that flexible joint life policies between divorced couples will soon become obsolete as they cause far more problems than they solve. The rates for single-life, term insurance policies have fallen in recent years so these types of policies may be the best choice for divorcing couples. Unfortunately, though, those individuals with health problems could very well find that they have to pay considerably more, or, at worst, be unable to obtain cover at all.