How to deal with life insurance after divorce

With around 42% of marriages in England and Wales ending in divorce, it’s something many of us will face in our lifetime. There’s a lot to think about when you’re going through a divorce – and life insurance is definitely something important to add to the list.

Put simply, life insurance pays out a sum of money to your beneficiary if you pass away while the policy is active. You might have taken out life cover to pay off a mortgage or provide financial protection to help your family pay for day-to-day living expenses if the worst happens.

Forgetting to deal with your life insurance policies could have big repercussions. For example, you could end up without enough cover or having a payout go to your ex when you don’t want it to. Legal & General research shows that 10% of people forget to update their beneficiaries when they divorce.

There are a few things to think about. One of the first things to do is find out whether you have a single-life policy or joint life cover. If you’re not sure, check your paperwork or ask your provider.

If you have a single-life policy, things are much simpler in the event of a divorce. The policy is in your sole name and any payout on your death will go to the person or people you nominate.

There are still some things to think about with individual life insurance policies and divorce:

• Updating your beneficiary. If you’ve nominated your spouse or partner to receive the payout if you die, you might want to change this. Doing this should be quick and easy – simply contact your life insurance provider and ask them to send you a new form. You could still be happy to leave your ex as the life insurance beneficiary, for example, if you have children together and they’re the main parent.
• Checking your cover still works for you. Will the amount you’re covered for still be right for your new circumstances?
• Making sure the premiums carry on being paid. If you’ve been paying for the policy from a joint or your ex’s account, be sure to transfer the payment to your own account. If life insurance payments are missed, your policy could be cancelled.

Lots of couples take out joint life policies, which are designed to cover two people. They pay one premium to cover them both and, if one partner passes away, the lump sum goes to the surviving partner. However, it’s a little trickier to sort out on divorce.

No matter what you decide, as with a single-life policy, there are things to think about. These include making sure your beneficiary is up to date, your cover amount is still enough and you don’t miss any premiums.

There are generally three different options if you have a joint life insurance policy:

You can split the policy

Called a separation benefit or agreement, this option means you can split the joint policy into individual ones without giving any new medical information. You’re then each responsible for choosing your own beneficiaries and paying your own premiums. However, this isn’t very common and not all life insurance providers allow this, so you’d need to check your terms and conditions or ask your insurer.

You’d need to give your provider evidence of your split for this option. And there’s usually a time limit – for example, with Legal & General you need to do this within six months of splitting.

One person can take over the policy

With this option, you and your ex need to agree for one person to take over the existing life insurance policy and the other one takes out their own cover, if they want. You’d need to agree with your ex who gets to take over the cover and it’s then legally signed over. Again, you’d need to check with your insurer if this is possible.

You can cancel the cover

This might seem like the easiest option, particularly if you’re struggling to agree with your ex. You simply cancel the cover and each buy your own new life insurance policy. Some providers need consent from both partners to cancel a joint life insurance policy, while others allow just one to cancel it. Ask your life insurer what you need to do.

But it’s worth bearing in mind that any new policies might charge higher premiums. This is because premiums generally go up as you age and if you have any new medical conditions.

Speak to your insurer early

Whether you have a single or a joint life insurance policy, it’s sensible to contact your provider early during a divorce. They’ll explain your options, including how to update your beneficiaries. If you can’t find your policy documents, they should be able to track down your policy details if you give them a ring.

What if your life cover is linked to your mortgage?

Lots of people have mortgage life insurance, which is designed to pay off the mortgage if you or your spouse die. What you do with this policy on divorce depends on your circumstances:

• If you decide to sell your house when you separate, you might not want the cover and may decide together to cancel it.
• If one of you takes over the property, you could look at signing the policy over to them.
• If you carry on jointly owning the home, you might want to keep your policy in place.

No matter what option you choose, it’s a good time to check that your life cover is enough and the named beneficiary is still correct.

What about death in service benefits?

Many companies offer death in service benefits to their employees. This pays out a lump sum (often a multiple of your salary) to your loved ones if you die while you’re employed. People generally nominate a partner or spouse to be their beneficiary. If you’re separating or divorcing, you might want to change your beneficiary to someone else.

It’s easy to forget to do this in the stress of divorce, but it’s simple to do. Just speak to your employer and all you usually have to do is fill in a new form to update your wishes.

Do you have to tell your life insurance provider that you're getting divorced? 

Telling your life insurance provider that you’re getting divorced isn’t a legal requirement, but it could affect your cover if you have a joint life policy. If you have a single life policy, there’s no need to tell them, unless you want to change the beneficiary or amend your cover amount. But if you have a joint life policy and you don’t tell your insurer, this could break your policy’s terms. So it’s always best to get in touch with your provider to let them know and learn your options.

It’s a good idea to review your policy at that time as you might want to make some changes. You’ll want to make sure your cover amount suits your new needs – and that you’re happy with the beneficiary.

If you have a single life policy, this is yours alone and won’t be part of any divorce settlement. But if you have a joint life policy, things could be different.

For example, let’s say one of you stays in the marital home and the other partner transfers their right to your joint life policy over to you. They’ve been paying into the policy but won’t benefit from it, so they could be entitled to some kind of compensation as part of the divorce settlement.

Policies with a cash-in value, like a whole of life policy, could be considered an asset and become part of a divorce settlement.

Your solicitor should be able to advise you on what this means for you.

Don’t forget to update your will

While you’re thinking about updating life insurance after a divorce, it’s also a good idea to review your will. You’re likely to want to make changes to the beneficiaries of your estate, among other things. And if you haven’t got a will, it’s the ideal time to make one – so your estate goes to the right people when you die.

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If your life insurance policy is held in trust and you go through a divorce, it makes things a little more complicated if you want to keep the policy. Most people want to remove their ex as their nominated beneficiary, but it can be tricky or impossible to do this for a policy written in trust:

• If your policy was written in a flexible or discretionary trust, you should be able to make the changes you want to the beneficiary.
• If it was written in absolute trust, you normally can’t change the beneficiary.

Speak to your solicitor or the lawyer who set up the trust to find out which applies to you and what you can do.

Can an ex-spouse collect a life insurance payout?

Yes, they can, which is why it’s so important to consider your life insurance policies when you’re going through a divorce or separating. If you have a valid policy and you’ve forgotten to update your beneficiary so your ex is still named on it, they’ll receive the payout.

It’s a little different if the policy has been put into a discretionary trust. The trustees have the discretion to decide who will benefit, though they’ll usually be guided by the wishes of the policyholder.

Can you take out a new life policy on your ex-spouse?

It is possible for you to take out a new life policy on your ex-spouse – but they have to know about this and agree to it. This can be a good idea if you rely on them for maintenance payments or child support.

Getting help with your life insurance after a divorce

As you can see, there are plenty of things to think about if you have life insurance and are going through a divorce, especially if you have a joint life insurance policy. It’s worth speaking with your provider or a financial adviser to understand your options when you go your separate ways.

If you’re taking out a new life insurance policy after a divorce, don’t just accept one from your current provider. Shop around to get the best deal. You could have a look at our article on 10 of the best-rated life insurance providers in the UK, or you can fill out our form to deal with an experienced insurance broker who can get life insurance quotes based on your new living situation.