Untangling the financial connections to your ex following a divorce can be extremely complicated with life and health insurance being no exception. But what are the options after divorce? We look at the facts.
Untangling the financial connections to your ex following a divorce can be extremely complicated with life and health insurance being no exception. But what are the options after divorce? We look at the facts.
If you have a family law issue and you feel you need legal advice, contact specialist family solicitor Mark Heptinstall of Slater Heelis Solicitors. He is recognised as a ‘Leading Individual’ in The Legal 500 and ranked in Chambers UK, and is described as having “the amazing ability to bring calm into troubled waters”.
Individual life insurance policy
When you take out an individual life insurance policy, you need to name a beneficiary who receives the payout if you die. If you took out an individual policy some years ago, you may have named your ex-spouse . After separating, you might not want them to receive any money if you die, preferring your children, other relatives, or a new partner instead.
Changing a life insurance beneficiary during divorce is usually straightforward, and most times can be achieved by completing a change of beneficiary form. It is important to inform the new beneficiary as well as the old one, so everyone is aware of the change.
If you depend on your ex for financial support, you might decide to take out life insurance on them. However, in order to do this you will need their consent. If they agree, it means that if they die you would continue to receive money to help raise the children or with other living costs.
Joint life insurance policy after divorce
If you have a joint life insurance policy and separate or divorce, it will remain as it was until you make any material changes to it. There is no distinction made by insurers between life insurance, whether you are separated or divorced. In either case, changes are driven by the policyholders. This means that if the policy continues without change, either party can claim on the policy provided it is intact, even if you are separated or divorced.
It may be possible to split a joint life insurance policy into two separate policies. However, this option is not always available with every insurance provider. If the insurer doesn’t let you divide the joint policy, here are two routes you could take:
- One party takes over the policy while the second person arranges a new policy for themselves if they still need life insurance.
- Both parties cancel the joint policy and take out a new single life insurance policy suited to their changed situation.
You can put your life insurance in a trust if you want to choose who will benefit from a payout. This allows you to name specific people as beneficiaries, such as your children, other family members, or even friends. You can change this at any time by completing and sending a change of beneficiary/expression of wishes form to your life insurance provider.
Changing a life insurance beneficiary if you have children
If you have children together, you may decide you want the payout to go to them. If you die before they reach the age of 18, you will need to put this money in a trust. The trustee will look after the money until your children are old enough to manage it themselves. The trustee could be a solicitor, or it could be someone else you can rely on such as a close family member or friend. This way, you can be reassured that your children will receive the money.
Do life insurance policies form part of a divorce settlement?
In many cases, life insurance is irrelevant to the settlement. For example, if you each hold individual life insurance policies, this will not affect the settlement because you have solely been paying the monthly premiums. If you sell of the matrimonial home, have no children and go your separate ways, it might be easier to cancel the life insurance policy. However, if one of you decides to remain living in the property, the person leaving should transfer the policy to their spouse’s sole name. Although they may ask for some sort of compensation because they won’t benefit from the payments that have previously been made.
Could a life insurance payout ever go to an ex-spouse?
A life insurance payout could potentially go to an ex-spouse, but this depends on various factors. If an ex-spouse is listed as the beneficiary of a life insurance policy and the policyholder does not update or change this after the divorce, the ex-spouse could still receive the payout. Insurance companies are legally obligated to pay the named beneficiary, regardless of the divorce, unless otherwise stipulated by court order.
In some cases, a divorce settlement may specifically require one spouse to maintain life insurance with the ex-spouse as the beneficiary. This is often done to ensure financial support (such as child support or spousal maintenance) in the event of the policyholder’s death.
If the life insurance policy is written in trust, the trustee may have a say in directing the payout, which could impact whether an ex-spouse receives the benefit. To avoid unintended payouts, it’s essential to review and update life insurance policies after divorce.
Health insurance after divorce
Health insurance arrangements after divorce can vary depending on the type of policy in place—single, joint, or family.
Single health insurance policy
If each spouse has their own individual health insurance policy, divorce does not affect the terms of the coverage. Each person will continue with their respective policies independently, and no changes need to be made unless they wish to adjust their level of coverage or switch providers.
Joint health insurance policy
In the case of joint health insurance policies, divorce would usually necessitate each party taking out their own policy. Many insurers do not allow ex-spouses to remain on the same plan post-divorce. It is important to contact the insurer to understand the process, as the policy’s premiums or benefits are likely to be affected.
Family health insurance policy
If a family health insurance policy covers the couple and their children, divorce generally means that the non-policyholder spouse (if not the primary insured) would be removed from the plan. The policyholder, often the parent with day-to-day care, can continue to maintain coverage for the children. The ex-spouse would need to secure their own health insurance policy, while the children can remain covered under the family plan.
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