Options for life insurance following divorce

April 27th, 2022
Options for life insurance following divorce

Divorce is one of the most emotional and stressful experiences anyone can go through. As well as a huge emotional impact, divorce brings with it major financial implications too. It usually involves the carving up of belongings, properties and assets once shared by both parties. While the financial separation sparked by a divorce can be a tricky issue, there are also many procedural matters, such as life insurance, that need to be tackled too. Many couples opt to take out joint life insurance policies during their marriage. But this can raise some tricky questions in the event of a divorce. With around 42% of marriages ending in divorce[1] (there were 103,592 divorces in England and Wales in 2020) [2], it is essential to arm yourself with knowledge about life insurance before and after a marriage.

What is a joint life insurance policy?

A joint life insurance policy covers two people and is the preferred option in more than 40% of cases. Joint life insurance means that if one partner dies, their loved ones will be able to support themselves financially. This makes it popular with married couples, alongside the fact that joint cover is usually cheaper than a single policy. The main types of joint life insurance are:

  • whole-of-life, which is designed to pay out when one party dies
  • decreasing term in which the amount reduces over time in line with a debt such as a mortgage
  • level term, which pays out a set amount if you die within a specified period

However, joint policies will only pay out once on a ‘first to die’ basis. So, what happens when a marriage ends in divorce?

Joint life insurance and divorce

Unfortunately, joint life insurance policies are fairly inflexible when circumstances change through anything other than the death of one partner.

Couples who are going through a divorce but have joint life cover have two main options:

  • Cancel the entire policy
  • Allow one partner to take over the life insurance policy
Cancelling your joint life insurance policy

If a couple does not agree that one partner should take over the life insurance policy, it can simply be cancelled. Terms will vary from provider to provider. This option leaves both parties free to take out individual, separate life cover.

If you have a joint whole of life insurance policy, you will have to ‘surrender the life insurance policy,’ which means that it will be cancelled. You will be able to collect a ‘surrender value’ when cancelling it. This will be the value of the fund amassed already but there will be fees and administrative charges which could significantly lower the total value.

Taking over a joint life insurance policy

It may be decided that one partner will take over the joint life cover as a single policy. The policy will need to be formally signed over to that person through a legal document which must be signed by both parties and submitted to the insurance company.

In some cases, it may make financial sense for one person to take over the policy. The person who takes it over will need to be able to pay the monthly premium. But taking over the policy may be cheaper than the premium you will face setting up a single policy as an older divorcee.

If you do take over the insurance policy, you may want to change the beneficiary or beneficiaries named on the policy. It is plausible you may no longer want your ex-partner to be named as the beneficiary. But you may, if you share children, still want them to be named as the beneficiary. It is important to note that if life insurance has been written ‘in trust,’ changing the beneficiary becomes more complicated. If a policy is written in absolute trust, it is unlikely the beneficiary can be changed. A policy written in flexible or discretionary trust may be easier to change.

You may also need to assess the sum named on the policy as a divorce can bring huge changes to a person’s financial situation. If you do want to make changes, it is important to contact your insurance provider and obtain the correct forms. Before taking over a joint life insurance policy, it is always worth assessing the cost of doing this compared to the cost of starting a new, single policy for yourself.

Is there any way a joint life insurance policy can simply be divided in two?

Joint life cover can only be divided in two if there is a ‘separation benefit.’ This is not a standard feature of joint life cover and is offered only by a few providers. When using the separation benefit clause of a life insurance cover, you will need to contact your provider and fill in a form, including evidence of your separation. A separation benefit is usually age-restricted and is not often available to customers over 55.

What is an individual life insurance policy?

While many married couples decide to get joint life insurance, many opt for single life insurance policies. This means both parties have separate policies in place which are independent of each other.

Individual life insurance and divorce

While it may be more expensive to pay for two individual policies, it is certainly less complex in the case of a marriage which ends in divorce. As single life insurance policies are completely independent of each other, couples who go their separate ways can simply continue with their individual policies.

However, it may be that you wish to change the named beneficiary on your policy as you may no longer wish this to be your former partner. Contact your insurance provider who should be able to change this for you by simply filling in a change of beneficiary form.

You will also need to check that your insurance policy is giving you the coverage you require. A divorce has huge financial implications for a person and can bring substantial changes to their living situation. Check that your policy is giving you the coverage you need. If not, make changes or look for a new policy that better suits your changed circumstances. FreePriceCompare can get quotes from dozens of providers so you can find the best value option for you. Our independent and impartial comparison service is 100% free and can help you find the best deal around.

What if I have a mortgage life insurance policy?

Mortgage life insurance, or mortgage protection insurance, pays your mortgage debts if you die. This policy can help your family keep a roof over their head in the event of one partner’s death but the money does not go directly to them. Mortgage life insurance names the mortgage lender as the beneficiary of your policy if you pass away. While this kind of policy can bring peace of mind, it does usually offer a decreasing payout (as the payout usually matches your mortgage balance) while your premium stays the same.

What happens to mortgage life insurance after a divorce?

What happens to this type of insurance policy in a divorce is determined by what happens to the home. If you both decide to remain joint owners of the property, so children can stay in the family home, for example, then you may decide to keep this kind of policy in place.

If you sell the home, then you will probably want to cancel this policy. But if one of you takes over the property alone, then it is likely you will negotiate a new mortgage deal and will therefore no longer need this particular policy.

Joint life insurance or individual – which is better for couples?

There are a wide range of factors a couple should consider prior to taking out joint or individual life insurance. If a couple gets divorced, it is certainly less complex if both parties have individual life insurance policies in place. These two policies simply continue after the couple goes their separate ways (although some changes to cover and beneficiaries may be required).

But are there other pros and cons? How do you decide which is best for you?

Before taking out a life insurance policy, consider your budget, your needs and your potential future needs.

  • Single policies can be a good option if there is a difference in the level of cover that you both need. They are also far less complex in the case of a relationship breakdown.
  • Joint life policies can be beneficial if you both need the same level and length of cover, for example, to pay the mortgage on a home, or to cover parental responsibilities.
  • Joint life insurance Is often cheaper than two single policies. FreePriceCompare can help you find the best individual or joint deals.
  • Situations and needs change regularly so it is always worth reviewing your cover every now and then to ensure you have the best possible protection in place.

How is life insurance affected if a couple separates but does not divorce?

Not all breakups end in divorce and couples may simply separate either permanently or for a prolonged period. A joint life insurance policy will remain as it was until you make any changes to it. Changes have to be prompted by the policyholder and insurers make no distinction between separation and divorce.

You are not legally required to tell your insurer about a divorce but you should contact them regarding changes in your circumstances. You will also need to see how your cover is affected by divorce, so check the terms and conditions section of your policy. In some cases, such as joint life insurance, a divorce may break the terms of the policy and render it meaningless, meaning you will not get a payout if you make a claim.

Check out FreePriceCompare’s free online tool today to find the best life insurance deal for you.

The degree of complexity in dealing with your life insurance after divorce depends on the type of insurance you have. Individual life insurance policies are far easier to manage in the case of a divorce, although it is not hard to see why joint life insurance is an attractive option for many married couples. If you want to check that you have the best option for your life insurance, FreePriceCompare is here to help. We round up life insurance deals from a large number of leading providers, including big names, so you don’t have to spend the time searching.

Simply tell us the type of policy you want and the length of time you want covered. Add a few easy, personal details about you and we can give you access to the best deals around in a matter of seconds.

Life insurance is not a legal requirement. In fact, 8.5 million Brits with dependents still do not have life insurance according to the Association of British Insurers [3]. Putting life insurance in place can help your family cope with mortgage payments, bills and funeral costs in the event of your death. It takes just minutes to arrange but protects your family’s financial well-being while giving you peace of mind.

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