A divorce or separation can be emotionally and practically very challenging. There is often a lot to consider, including children, homes, lifestyles and finances. If you arranged life insurance during your time together, you may want to alter it to suit your new circumstances. There are convenient ways to adapt your life insurance after a divorce and some life insurance companies include options that can be utilised for this very purpose.
In this article, we will look at how to adapt your life insurance to reflect the changes in your life. Where possible, we'll show you how to retain your current benefits at the original price too.
Life insurance and divorce UK
The way that life insurance works in the UK means that you will usually be able to separate a life insurance policy if you separate or divorce.
You should be careful not to cancel existing life insurance arrangements without due consideration. Life insurance becomes more expensive with age so your existing life insurance policies will probably be cheaper than you'll find in the market today. If your or your ex-partner's health has changed since arranging your life cover, again that could make buying new life cover policies difficult and pricier.
What type of life insurance do you have?
In the event of a divorce or separation, the first thing to do is to review the life insurance policies you have and establish who is insured and how the benefits would be allocated if a claim were made. If you're not sure what types of insurance you have, it can be useful to look at the direct debit payments from your bank account to check which insurance company you are making your payments to and the associated reference. The life insurance company will be able to send you a policy schedule if you are the policy owner.
The policy schedule or summary will show you:
- Insured person - the policy owner and the person insured don't have to be the same people so it is important to work out whose life is covered
- Type of insurance - term life insurance such as level term assurance or mortgage term insurance pay out if you die within a specific time period. If it is a whole of life insurance it will provide cover until you die whenever that may happen
- Benefit type - this is the event that will trigger a claim and can be death, terminal illness or critical illness
- Payment type - this is the way in which the death benefit would be paid and can be as a lump sum cash benefit or a regular income over a period of time.
- Sum assured - this is the amount of money that will be paid in the event of a claim
- Term - this is the number of years that the policy will provide insurance for
- Policy premium - this is the monthly cost of the life insurance policy
Life insurances are usually arranged in one of the following ways:
- Joint life - this type of life insurance will mean that you are both insured on the policy and the policy will pay out for the 1st person to die with no ongoing insurance for the survivor.
- Single life - this type of life insurance policy usually insures one person and will pay out if that person dies.
- Combination plans - plans can include single life policies as well as joint life policies and are usually arranged so that multiple policies can be administered together and there is usually one combined payment to cover all the policies within the plan.
If your life insurance is jointly owned then you will usually both have to give permission to make any changes to it. Your life insurance company will be able to clarify this if it isn't immediately clear from your documentation.
How to split joint life insurance after divorce
A joint life insurance policy is designed to protect two lives but only pays a claim for the first event to take place. This could be death, terminal illness or critical illness. Your policy summary will show which events are insured under the policy. Most joint life insurance policies include a separation option and this can be utilised to split the insurance into 2 policies - one for each person, insuring them individually.
Both policy owners will have to agree to separate the policy and proof of the separation as well as a written request to separate the policy are usually needed. Some life insurance companies will only allow a maximum sum assured equal to the total amount insured on the original policy to be split between both people - it can be apportioned differently though. Other life insurance companies are more generous and allow each person to have the same amount of insurance on an individual life insurance policy, each that they would have had jointly.
If the insurance company uses your current age to work out your single monthly premiums then you won't benefit from the cheaper rates you would have been paying on the original policy. If your health hasn't changed since buying your joint life insurance policy, it can be useful to check what your life insurance would cost if you were to start a new one. You can speak to a life insurance adviser* who will be able to search the market and offer you some quotations.
Advantages of utilising the separation option to split a joint life insurance policy
The key benefit of utilising the separation option is that you do not have to go through a new medical and lifestyle questionnaire. The policy will continue to insure you as if there has been no change to your health. This is particularly beneficial if your health has changed and the change would make a new policy more expensive or unavailable.
Some insurance companies will also calculate your monthly premium based on the age that you were when you started the joint life insurance policy. This would be advantageous as life insurance gets more expensive as you get older.
How life insurance companies treat the separation of a joint life insurance policy
|Insurance Company||Max time period after separation that changes can be made||Available if original plan was accepted at non standard terms?||Premiums calculated on what age?||Smallprint|
|Aegon||6 months||No||Current Age||Death benefit must have at least 1 year left and Critical illness benefit must have at least 5 years left|
|AIG||6 months||Yes||Original Age||Cannot be separated in the last 3 years of the policy. Each life cannot keep the full amount of life insurance - it would have to be split between the 2 lives but can be apportioned differently.|
|Aviva||90 days||No||Current Age|
|Canada Life||6 months||Yes||Current Age||Only available for mortgage life insurance|
|Guardian 1821||n/a||n/a||n/a||Guardian 1821 only offers dual policies which means that you are insured separately.|
|Legal & General||6 months||Yes||Current Age||Separation option available for unmarried couples who took the life insurance to protect a mortgage.|
|LV||6 months||Yes||Current Age||Within 6 months of formal separation, each person would be able to take a policy but between 6 and 12 months only one person would be able to carry on the life insurance.|
|Royal London||6 months||Yes||Original Age||Only available for mortgage life insurance|
|Scottish Widows||6 months||Yes||Current Age||Separation benefit available for unmarried couples who took the life insurance to protect a mortgage.|
|Vitality||3 months||Yes||Original Age||Only available for mortgage life insurance|
|Zurich||90 days||Yes||Current Age|
How to split single-life insurances after divorce
Single life insurance policies are easier to address after a separation. However, there are a few things that you should check to ensure that they reflect your new circumstances and future wishes.
Even though you may be insured separately, you may still be owners of one another's policies, depending on the way that your life insurance was arranged. A policy owner can benefit from a claim against the policy and if you no longer wish for this to be the case, you will need to address it.
- Check that you are the person insured and the policy owner to take full control of your life insurance if this is what you wish
- Check and alter the beneficiaries of any claim payment if necessary (see section on trusts if your policy is in trust)
- Check that you are insured for an appropriate sum of money and time period based on any changes to your circumstances such as your mortgage.
If you feel that your life insurance policy does not provide appropriate benefits based on your new circumstances, you should speak with specialist life insurance adviser*.
How to split life insurances arranged under one plan after divorce
Some life insurance companies provide plans that can house several policies within them and be paid for with one direct debit payment. Within the plan, you can have single or joint life insurance plans and you may even have both so it is important to decipher them individually.
Most life insurance companies that offer these types of plans will allow the life insurance policies to be separated if they are single-life policies. However, joint-life policies will be treated under the separation benefit rules described above.
With all life insurance policies, it is important to check that any claim payment would be made to the people you want to benefit. If those people are children then it is wise to nominate individuals who will manage the payments on their behalf through a trust.
A life insurance specialist* will be able to advise and help you with this process if you need it.
Changing your life insurance beneficiary during divorce
If you have stipulated who should benefit from your life insurance if a claim is made through your will, you should review this. Separating from your spouse will usually involve this type of review. Your will should reflect your new circumstances and your revised wishes.
Some life insurance policies are written into a trust. Trusts are legal documents that provide a way of nominating who benefits from any claim money and the people who will manage the trust. If your life insurance is written into a trust, it can be difficult to alter it but you should contact the life insurance company to check this.
Life insurance in a divorce settlement
In any case, you will need to go through a process of considering who should benefit from your life insurance and which people you wish to give responsibility for discharging your wishes. For couples going through a separation who have children, there may be more to consider. Sharing custody and responsibility for children may mean that you still wish to nominate one another to access monies for your children's benefit. It is possible to nominate more than one person to entrust this duty to, which can often give you peace of mind that any claim money will be managed in the right way. It is useful to discuss these arrangements as part of the divorce settlement.
For more information about trusts, you can read our article "Writing your life insurance in trust".
Getting help to understand life insurance during a divorce
Life insurance can be complex and a change in your life circumstance can make it seem more complicated. Often, there is much to unravel and rearrange during a separation so engaging the help of a specialist life insurance adviser can make the process much simpler. Life insurance advisers are trained to review existing arrangements and help you make changes where necessary.
If your health has changed since you bought your original life insurance, be sure to point this out to an adviser so that they can work on trying to keep your existing arrangements as far as possible. Cancelling a life insurance policy could leave you without insurance and in a worst-case scenario, without the ability to replace it too. It is wise to continue to pay the premiums for an existing life insurance policy until such time as you have effected replacement life insurance if you are to do this.
At Money to the Masses, we have tried and tested the service provided by a specialist life insurance advisory company* whose advisers are very well trained and have access to the whole market making them well versed in how different policies work.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article - LifeSearch