Life Insurance After Divorce

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The aftermath of a divorce, even an amicable one, can involve major readjustment for both of the people involved. Part of this readjustment involves creating new financial arrangements. With everything else, divorce involves, it’s understandable that life insurance may seem like a low priority. It should, however, be reassessed as quickly as possible. Here are some tips.

 

Update your death-in-service benefits

Technically, death-in-service benefits and life insurance are different. In practice, from an employee’s perspective, the only real difference is that the former is paid by their employer and the latter they pay themselves. If you haven’t updated this already, then you should do so as quickly as possible (if relevant).

On a separate note, you should also check your next-of-kin details and details of anyone else who might receive a benefit in the event of your death. For example, you might want to check what happens to your pension (pot) if you die before putting in a claim on it.

 

Decide if you still need life insurance at all

If you have dependents, especially minor children, then you probably still need life insurance. If you don’t then you probably don’t unless you have a mortgage and your lender insists on it.

If you had life insurance purely to keep your mortgage-lender happy then you will probably only still need it if you still have the mortgage. If you had life insurance for any other reason, then think about whether or not that reason still applies.

 

Check the nature of your life insurance

Life-insurance policies come in two main forms. These are joint-life and single-life. Joint-life policies typically cover two people but only pay out on the first death (usually to the survivor). Single-life policies cover one person only and hence pay-out on their death.

Joint-life policies can only be split through a formal process. Single-life policies cannot be split but their ownership may need to be updated. In simple terms, the person covered by a single-life policy may be different from the legal owner of a single-life policy. If you are divorcing, you may need to update the ownership of these policies to reflect the change.

There are also life-insurance plans which combine elements of both joint- and single-life policies. With these, you apply the joint-life rules to the joint-life section of the plan and the single-life rules to the single-life section of the plan.

Decide whether or not you need to split joint policies

If you and your former spouse are still co-parenting children, then you may just wish to leave any current joint-life insurance policies as they are. At the end of the day, the policies are probably to benefit your children rather than your former spouse.

If you enter into another long-term relationship, you can always set up another life-insurance policy if necessary. That said, if you are both financially-independent adults, then life insurance may be a waste of money. It might only become relevant again if you had children together (or took out a mortgage together).

If you do want to go your separate ways financially, then you can either split the joint policy or take out new single-life policies. The advantage of the former is that it will generally allow you to maintain the original pricing. The advantage of the latter is that it may be an easier process.

 

Decide what to do with single-life policies

If you have a single-life insurance policy, then you need to think about whether or not it’s still relevant to your needs. In particular, you need to check if the level of cover is still appropriate. You also need to think about who should benefit in the event of your death.

Quite bluntly, divorced couples cannot transfer property to each other tax-free the way married couples can. It may therefore be preferable for you to name your children as beneficiaries rather than your former spouse.

Please contact us if you want any more information.

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