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… 

Mubina Pirmohamed
Insurance expert
minute read
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Posted 30 JUNE 2021

Life insurance and divorce

Divorce can bring emotional upheaval for all concerned, not least because you’ll need to untangle the financial ties of your married life. As well as the division of assets, property and possessions, divorce can also have an impact on your life-insurance policy.

The effect of divorce on your life insurance will depend on the type of policy you have. Start by checking whether 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, the only policy change you might need to make is the name of your beneficiary. Most policies allow you to change the beneficiaries at any time for whatever reason. After your divorce, you might want your money to go to your children, relatives or a new partner if you die, rather than your ex.

On the other hand, if your ex-partner is the primary caregiver who relies on your income for child maintenance, you might prefer to keep them as the beneficiary.

Now your circumstances have changed, you should also review your life insurance to ensure you have enough cover in place – especially if there are children involved. It may be that you need to increase the ‘sum insured’ amount.

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, there are two main options available in the event of a divorce:

  • one of you takes over the policy and the second person can take out a new policy
  • the policy is cancelled, and you can both choose to take out your own life cover to suit your new situation

Joint policies can’t be divided into two separate policies, unless you specified a ‘separation benefit’ when you set up your policy. This isn’t offered by all providers, so you’ll need to check the policy details or ask the provider.

If you don’t have this option, one of you could decide to take over the joint policy on your own. That person would then be responsible for paying the premiums and 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 need to put the policy ‘in trust’ – see below for more information.

You’ll both need to agree on who will take over the policy, and a legal document will be drawn up. This will require both of your signatures, to show that you agree to the change.

If you can’t come to a mutual agreement, you’ll need to cancel the joint policy entirely. You generally don’t need consent from your partner in order to cancel a joint life-insurance policy. However, some providers require cancellation letters to be signed by both people – so check what’s required for your particular policy. If you cancel without the knowledge of the other person, it could have huge consequences if something were then to happen to either of the policy holders when one believes they have cover but they don’t.

If you choose to cancel it, 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. It’s also worth thinking about the timing of cancellation; you’ll probably want to make sure your new policies are in place before you cancel any cover – just in case.

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 the life insurance pay-out separate from the valuation of your estate – the sum of your property, money and possessions – after you die. You can ring-fence the pay-out from a life-insurance policy by putting it in trust, which could help you protect your beneficiaries from inheritance tax (if the value of your estate is more than £325,000).

It’s possible to write a joint policy in trust, but this kind of policy isn’t usually taken out in this way. Typically, only single life-insurance policies are written in trust.

Find out more about writing life insurance in trust.

A policy tied to your mortgage

If your life insurance is tied to a joint mortgage, you’ll need to decide what to do if you sell the property after the divorce, or if one of you remains living there. If you have a joint life-insurance policy on your mortgage and decide to sell up, it might be best to cancel the policy, then each get your own insurance. But if one of you decides to stay and buy out the other, it might make sense to sign over the policy to them. Just make sure that whoever’s taking over the policy has enough cover to pay off the mortgage if they die.

In some cases, divorced parents may agree to keep joint ownership of the property so that children can remain in the family home. If this is the case, you might decide to keep the life-insurance policy as it is, especially if you’re both contributing to the mortgage.

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.

Top tip

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.

Frequently asked questions

How does separation benefit work?

Some joint life-insurance providers offer a separation benefit or separation agreement option that you can include at the start of your policy. This allows you to divide the policy into two separate policies if you divorce. Not all providers offer this feature though, and those that do may have an age restriction – it’s only usually available to customers under the age of 55.

Do I need to tell my insurance provider if I’m getting divorced?

You’re not legally obliged to tell you insurance provider about your divorce, but it’s best to let them know about any major changes to your life. You should also check out the terms and conditions of your policy and how your cover could be affected if you divorce. For example, if you have joint life insurance, divorce may break the terms of your policy. If you didn’t tell your insurance provider about your separation, they might refuse to pay out in the event of a claim.

Can I keep my ex-partner on my life insurance after divorce?

Yes. If you want to keep your ex-partner on your life insurance, you won’t need to make any changes to your existing policy. If they remain the named beneficiary, they’ll automatically get the pay out if you die while the policy is still active – even if you’re divorced.

How do I cancel a joint life insurance policy?

Contact your insurance provider if you want to cancel a joint life-insurance policy. You don’t need your ex-partner’s consent to do this. Some providers will charge a cancellation fee, while others will let you cancel free of charge; it depends on the provider. Just be aware that you won’t get back any of the premiums you’ve already paid.

Once you’ve cancelled the policy, your insurance provider may talk to you about a new single policy with them. Don’t feel pressured into saying yes. By shopping around and comparing quotes, you might be able to find a cheaper deal that’s better suited to your changed circumstances.

For fee-free impartial advice on your life insurance options after divorce, give our friendly partners LifeSearch a call on 0800 072 1147.

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