Divorce and life insurance: the key points

The emotional challenge of a divorce is often made harder by financial disagreements. If you understand your options for life insurance, you might be able to ease some of your worries…  

The emotional challenge of a divorce is often made harder by financial disagreements. If you understand your options for life insurance, you might be able to ease some of your worries…  

Tom Harrison
Content writer
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Posted 2 SEPTEMBER 2019

Life insurance and divorce

The effect of divorce on your life insurance will depend on the type of policy you have. Start by checking if you hold:

  • a single policy
  • a joint policy
  • a policy that’s held ‘in trust’
  • a policy tied to your mortgage

A single policy

The rules on life insurance are usually quite straightforward if you and/or your ex-partner have single policies. If this is the case, then the only change you might need to make to your policy is to change the name of your beneficiary. That said, after a major life event such as a separation, you should review your life insurance to ensure you have enough cover in place – especially if there are children involved.

A joint policy

Joint life insurance covers two people’s lives, but pays out only once. Typically, this pay-out is a lump sum that goes to the survivor after the first person dies within the term of a policy. If you have a joint policy, you’ll need to decide if you want to continue with that policy or cancel it.

Joint policies can’t be divided, unless you’ve specified a ‘separation benefit’ when you set up your policy. In this instance, one of you could decide to take over the joint policy on your own. If you both agree on this, that person takes on the policy, pays the premium and will have total control over who benefits from any pay-out.  If you or your ex-partner choose to take over the policy, but you want to ensure that any children will benefit from a pay-out, you’ll have to put the policy ‘in trust’ – see below for more information.

If you can’t divide your joint policy, then you’ll need to cancel it entirely. You don’t need consent from your partner in order to cancel a joint life insurance policy. If you choose to cancel the joint policy, you’ll need to arrange a new life insurance policy to cover yourself. Given that age is one factor in determining how much life insurance costs, you might want to consider doing this sooner rather than later.  

Your life insurance provider should be able to advise you on any costs involved in making changes to your policy. 

A policy that’s held ‘in trust’

A life insurance policy in trust is a legal arrangement that keeps a life insurance pay-out separate from the valuation of your estate – the sum of your property, money and possessions – after you die. By ring-fencing the pay-out from a life insurance policy, by putting it in trust, you could protect it from inheritance tax (currently set at £325,000 for one person or £650,000 for couples). 

It’s possible to write a joint policy in trust, but this kind of policy isn’t usually taken out in this way. Two single policies are often seen as better than one when couples set up a policy. Typically, only single life insurance policies can be written in trust.  

If your life policy was written in trust, the policyholder can select who the trustees or beneficiaries are. It’s worth having the trustees and beneficiaries confirmed in writing during the divorce settlement, or at least have a copy of your trust, so that the policyholder can’t change this afterwards.  

A policy tied to your mortgage

If your 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 fairly easy, but if you’re considering other beneficiaries, such as children, you’ll need to factor them into your planning.

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.

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