Divorce is a stressful process and it can be hard to keep track of all of the different changes going on. It can be a serious mistake to overlook changing your life insurance, however. This guide looks at the reasons why life insurance divorce changes are necessary, along with some important facts about insurance and divorce law.
Life insurance and divorce
Divorce is something that many people face. In 2020 alone, there were 103,592 divorces granted in Wales and England . Unreasonable behaviour and separations of two years or longer were the main reasons cited by men and women seeking divorce  but, whatever the reason, there is no doubt that legal separation from a partner can be time-consuming and stressful.
Unravelling the many financial ties that can connect you to a partner can often be complex. This includes life insurance divorce unlinking. It is important to take the bull by the horns, however, and ensure that you can move forward in your life without any unnecessary financial management issues.
One of the first things you need to consider when thinking about life insurance after divorce is what kind of life insurance is involved. Insurance and divorce law is affected by the type of policy chosen in the first place. Let’s take a look at the possible options involved.
Types of life insurance and divorce law
This is probably the simplest type of insurance to sort out. If you and your former partner have single policies, then the main change to your insurance may simply be changing the beneficiary.
Most insurance policies make it fairly simple to change the name of your beneficiaries and you can do this at any time and for whatever reason you choose. After divorce, you may want to prevent your former partner from benefiting and ensure that your children, new partner, or other family members are properly provided for when you die.
The changes you need to make will depend on your personal circumstances, however, and it may be that you still want your ex to be a beneficiary, for example. This might be because they will need financial support to look after your children if you were to die.
It is also worth saying at this point, that substantial changes in your life also offer a good opportunity to reassess your life insurance and make sure that you have the right cover to meet your needs. This will ensure that you have the right insurance after divorce is final. At this stage, you may want to look at how much cover you have in place and whether this is enough, should the worst happen. This is vitally important if children are involved. Thankfully, there are options to up the ‘sum insured’ if this is what you require.
This type of policy insures two people but will only pay out once, giving a lump sum to the surviving person after the first dies. Obviously, this only happens if death occurs within the policy’s agreed term.
If you have a joint policy, there are a couple of main options that are available to help you manage divorce insurance in the UK. Firstly, you could choose to have one person take over the policy, while the other gets another policy. Secondly, you may both decide to cancel the policy and both of you can then take out different life cover policies to better meet your current and future needs.
In general, you cannot divide a joint policy into a pair of separate policies. The exception to this is if you chose a ‘separation benefit’ at the time of setting up your policy. Not all providers offer this and, if you are unsure, check this out with your policy provider or look at the policy details.
If one of you does decide to take over the policy, this will involve taking over responsibility for all premium payments going forward. This will mean that the paying party will then have complete control over the beneficiaries.
There is the option to ensure that children will get a pay out from the policy, with the potential to put a policy ‘in trust’. This will be explained in more detail a little later on in this guide.
If one of you wants to take over the joint policy, you will both have to agree to this and sign a legal document agreeing to the change. If both of you can’t agree, then your only option will be to cancel the policy and source alternative cover. It is worth noting that you won’t generally need your ex to consent to you cancelling joint life insurance, although some providers will ask that you provide cancellation letters signed by both of you. Once again, it is important to check your insurance documents or contact your provider to make sure you have all the facts and what you need to do to make the process as seamless and stress-free as possible.
Whatever happens, it is important that both you and your partner are informed about what is going on. It would be a horrific situation if one party was unaware that the other had cancelled a policy and there was no pay-out if something terrible were to happen.
If you choose to cancel your insurance divorced spouse options should also be considered. Don’t put off sorting out an alternative for you as everyone knows that sometimes the unexpected really can happen. There is also a financial incentive to sorting out cover sooner rather than later as age is one of the factors that will affect the price you pay for your policy.
It is also important to consider timings. You want to make sure that your existing cover doesn’t end before your new cover is in place. If you need advice about any charges that may be made for changing your cover, make sure that you ask your insurance provider.
Policy held ‘in trust’
This is a legal arrangement to keep life insurance pay-outs completely separate from your estate valuation, which will typically include the sum of any money, possessions, and property held when you die. This can ring-fence insurance payouts to prevent your beneficiaries from being hit hard by inheritance tax on estates worth in excess of £325,000.
It is usually only single insurance policies that are held in trust but it is possible to hold a joint insurance policy in trust. This is not usually the case, however. More in-depth information about insurance held in trust can be found on the government’s website .
Policy tied to mortgage
What you need to do in terms of this type of policy depends on what you plan to do with the property involved. If you are selling it, you may be best-served by cancelling a joint insurance policy associated with this and take out new insurance to suit your individual needs. If, however, one of you plans to buy out the other and stay in the property, it might be a good idea for them to take over the insurance policy. Whoever takes on the policy must check that there is enough cover to ensure the mortgage is paid off if they die. It is also important to factor in other beneficiaries, such as offspring and other dependents, when deciding how much you need to cover for mortgage life insurance.
Do you need insurance as a single person?
It can be tempted to forget about life insurance if you are a single person after divorce. Many people question whether it is really necessary, especially with so many financial pressures on household budgets.
In fact, there are many benefits to having life insurance even if you don’t have a partner, children, or dependents. These include having money to cover funeral costs and building wealth while you live. There are policies, for example, that can help you build wealth by effectively acting as a type of savings account and helping to build a capital sum.
Life insurance can also be a way of protecting your income in the event of illness or injury or ensuring that your debts are covered if you were to die before they’re paid off.
It is also worth remembering that financial dependents who may need support after your death don’t necessarily have to be partners or children. It could be your parents who you care for or someone else who would struggle without your help. It could also be business partners as opposed to personal partners.
Amend your will and get advice
It can be really helpful to enlist the help of an independent financial adviser if you are unsure about financial issues, such as those relating to your mortgage or life insurance. You can find an adviser with help from the Financial Conduct Authority at https://www.fca.org.uk/consumers/finding-adviser.
If you’re going through a divorce, you may want to amend your will to have a say on what happens to your assets if a former partner re-marries. If you’re unsure about anything linked to your life insurance or mortgage, consider getting in touch with an independent financial adviser.
Separated but not divorced
You may decide to separate from a partner but not divorce or there could be a much-needed period of separation, which may span several years. It is worth noting in this instance that insurance companies don’t generally differentiate between separation and divorce and changes won’t be made to a joint policy, for example, unless you actively make them.
Again, it can be easy to let things slide, especially when so many emotional things are going on in your life, but this can lead to further heartache in the future. You don’t want your children to have to face the uncertainty of being in financial difficulties after your death, for example.
This may sound dramatic, but it really can pay to be well prepared for any eventuality. This can sometimes feel hard to think about, especially when emotions are raw, but it can also offer comfort to know that your proper planning has the potential to really minimise the burden on your loved ones or dependents should the unthinkable occur.
Advice on divorce
Of course, sorting out your life insurance is only one part of the divorce process. There is a plethora of information available on legally separating from a partner. Some of the most trusted sources include the likes of Citizens Advice (https://www.citizensadvice.org.uk/family/how-to-separate1/getting-a-divorce-or-dissolution/) and the Government website at https://www.gov.uk/divorce.
Make sure you talk through your feelings and the practicalities of the divorce or separation to minimise the longevity of the process and prevent more problems than are necessary in the future. Dividing assets and lives can be a traumatic process, even if a divorce is as amicable as possible, but good organisation can at least minimise the potential for unnecessary problems as everyone’s lives move forward.
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