Life insurance and divorce: what you need to know

The event of divorce or separation can be complicated for all involved. There are plenty of decisions that need to be made, from dividing assets to arranging child support. Sometimes emotions can run high or in other cases, things may be resolved amicably. Either way, it’s a big change.

If you have a life insurance policy, it's worth understanding how your cover could be impacted by a divorce. While everything may seem perfect now, there's no guarantee that it will stay that way in the future.

In this guide, we’ll look at how your policy may be affected and what steps you may need to take.

What happens to life insurance in a divorce?

How your life insurance is affected will depend on the type of policy you have. In some cases, the cover can remain unchanged, but details such as beneficiaries or the purpose of the policy may no longer suit your circumstances. You might even decide that the policy needs to be reviewed or cancelled altogether.

Single life insurance policy

If you have a single life insurance policy in your own name, a divorce shouldn't impact your cover. The policy continues as normal, and you remain the sole policyholder. It’s up to you to decide whether changes are needed.

For example, you may wish to update your beneficiaries if your ex-spouse is currently listed. Alternatively, you might decide to redirect the benefit into a trust for your children.

Joint life insurance Policy

Joint policies are often taken out by couples who share commitments like a mortgage. During a divorce, these matters can become more complicated.

A first death policy, which pays out when the first insured person dies, may no longer be suitable after a divorce. The benefit could go to your ex-partner rather than your dependents.

Second death policies pay out only when both policyholders have passed away. This cover may not be practical if you’re no longer financially linked.

There are a few options if you have a joint policy:

• You could keep the policy
   
• You could ask the insurer if they are able to split the policy into 2 single policies
   
• You could ask the insurer to remove one person
   
• You could cancel the policy and take out something new - please understand that if you choose this option, you will need to submit a new application based on your new circumstances.

Can life insurance policies be part of a divorce settlement?

Whether your life insurance is treated as part of the marital assets depends on the type of cover you hold.

Term life insurance has no cash-in value. Because of this, they are generally not included in the division of assets.

Whole-of-life insurance can sometimes build cash value. In this case, it may be considered as part of the marital estate and therefore included in financial negotiations.

If you’re unsure how your policy might be treated, speak to your solicitor. They can explain whether your life insurance will be relevant to any settlement and how it should be handled.

Can an ex-spouse claim on your life insurance

As long as your ex-spouse is listed as a beneficiary on your policy, they may receive a payout in the event of your death. 

If you no longer wish your ex to benefit from your policy, you’ll need to update the beneficiary details with your insurer. You may also want to consider placing the policy in trust so you have greater control over who receives the payout. You may also want to update your last will and testament to help ensure you’re covered on all fronts.

If child maintenance is involved, the court may require you to keep your ex-partner as the beneficiary so your children are financially protected.

Should I update my beneficiaries after a divorce?

You can update your beneficiaries at any time, including during divorce proceedings. If you don’t have children, it often makes sense to remove your ex-spouse as a beneficiary and redirect the money to another family member.

However, if you have children, the situation can be more complex. Some people choose to keep their ex as a beneficiary so the funds can be used to support the children.

Leaving your ex-partner as the beneficiary isn’t the only option. You could:

• Redirect the payout directly to your children (if they’re adults).
   

• Place the policy in trust, so the money is managed on behalf of your children.
   

• Nominate another trusted family member to handle the benefit for them.

The key point is that if you don’t make changes, your insurer is legally obliged to pay whoever is currently named on the policy, even if that’s your ex.

Do I need to let my insurer know about my divorce?

As with any significant life change, it’s a good idea to let your insurer know. Depending on your new circumstances, your policy may need updating, or in some cases cancelling.

If you had a joint policy, you may need to arrange cover for yourself. Even with a single policy, it’s worth reviewing your details and beneficiaries to make sure everything still reflects your wishes.

Do I need a new life cover after a divorce?

Divorce can change your financial situation significantly, which means your protection needs may also shift. You may think you no longer need cover, but there are a few reasons why it might make sense to take out a new policy.

You may find that your financial responsibilities have changed. For example, if you move or take on a new mortgage, you might need cover that matches.

Living in a single-income household can also make it harder for your family to cope financially if something were to happen to you. On top of that, if you have a new partner or dependents, you may want to ensure your policy is set up to protect them instead.

The key thing is to make sure your policy matches any new responsibilities. For some people, this might mean replacing a joint policy with a new single one, while for others it could mean increasing or reducing their cover.

Where to get advice

Going through a divorce can be stressful enough without having to worry about the fine details of your life insurance. At Cavendish Online, we can help you review your options and make sure your policy reflects your new circumstances.

One of the most effective steps you can take after a divorce is to write your policy into trust. This gives you more control over who receives the payout and makes sure the money is passed directly to your chosen beneficiaries.

Whether you need to update an existing policy, or arrange a new one altogether, our team is here to guide you. You can apply online in just a few clicks or, if you’d prefer to talk things through, speak with one of our friendly advisers over the phone. We’ll help you find the right cover at the UK’s lowest premiums.