What happens to life insurance after divorce?

Separating and starting again

Divorce is not only an upset for your family – it can throw up unexpected financial difficulties too.

If you find yourself in this situation, you'll need to think about how to manage any existing life insurance policies you have – jointly or separately.

Here are some of the things you'll want to consider.

Divorce and life insurance

What happens if you have individual life insurance policies?

This process is simplest if you and your ex-partner have single, individual policies – in which case you may not need to make major changes.

But you should check that you'll still have the right level of cover following the costs and financial changes of the divorce – especially where there are children in the picture.

You might also want to change the beneficiary of your life insurance if this is currently your ex-partner.

What happens if you have a joint life insurance policy?

Unless you have what's called a 'separation benefit', joint policies can’t be divided.

In this instance, one of you can decide to take over the joint policy as a single policy or you’ll need to cancel it entirely.

To help you decide what's right for you, compare the cost of taking over the joint policy to starting a new, single policy.

What are the benefits of taking over a joint policy?

Irrespective of whose life is insured, the person taking on the policy will pay the premiums and have sole control over who benefits from any payout. 

If you or your ex-partner choose to take over the policy, but you want to ensure that any children will benefit from a payout, you can have the policy put in a Trust.

Whatever you do, don't rely on any other legal document (such as a will) to change the beneficiary of any life insurance policy. You must make sure beneficiaries are named on the policy itself.

If you don't have a beneficiary named on your policy in the event of a payout, the money can be paid into the insured person’s estate and shared out in a will.

What if you have a mortgage life insurance policy?

If the insurance is on a joint mortgage, it’s a good idea for whoever takes over the policy to make sure they have enough cover to pay off the mortgage if they die.

Working out how much you need for mortgage life insurance should be straightforward, but if you’re considering other beneficiaries, such as children, you’ll need to add them into the equation.

Remember that the choices open to you if you're dealing with the financial effects of divorce will depend on various factors such as your age, health and employment. If you feel unsure about these decisions, consult an independent financial adviser.

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