Life insurance after divorce explained

We look at the differences between individual and joint life insurance policy after divorce. You’ll also learn how it affects named beneficiaries, and how to change them. And we look at the relationship between life insurance and divorce settlements.

Joint life insurance policy after divorce

Couples often choose to take out joint life insurance policies. This may cost less than each person taking out their own policy. But what you do about joint life insurance after divorce is different. There are two options.

Your second option is to transfer the policy to just one partner. They will then need to keep up payments that both of you were paying before. Depending on the circumstances of your divorce, this might be tricky to negotiate. To transfer the policy to one partner, you need to complete a legal document with both your signatures agreeing to the change. The insurer will then register this.

This approach might be right if one person is keeping the home or taking more custody of children. This is because the payout may be more useful for them.

Life insurance beneficiary after divorce

If you are thinking about changing life insurance beneficiary after your divorce, take some time to think through your options. If you have an individual policy, your ex may be the named beneficiary. Deciding who the new beneficiary is will depend on your circumstances.

If you have children together, you might decide you want a payout to go to them. If you die before they turn 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, like a sibling or close friend.

Alternatively, you might prefer to change the beneficiary to someone else. This could be a new partner. Or it could be one of your relatives, such as a brother or sister.

Whatever you choose to do, you need to contact the insurer and ask for a change of beneficiary form. This will usually be a fairly easy process. Remember to inform your ex that you’ve removed them as the primary beneficiary. While you’re doing this, it’s also worth thinking about your will. Make sure to change it so it matches your new wishes.

Of course, you can also keep your ex as the beneficiary if you so wish.

Do life insurance policies form part of a divorce settlement?

Whether you include life insurance in a divorce settlement depends on a number of things. In some cases, life insurance is irrelevant to the settlement. In other cases, it’s very important. Or it could simply be up to the both of you to decide if you want to include it or not.

If you each hold individual life insurance policies, this will not affect the settlement. You have solely been storing the money away so you just need to change the beneficiary.

Joint life insurance policies after a divorce are relevant to the settlement. Depending on the kind of policy you have and what you choose to do, it will affect the settlement in different ways.

For example, if you sell off the house, have no children and go your separate ways it might be easiest to cancel the policy. But if one of you decides to stay in your home, the person leaving needs to transfer their right to the policy over. They could reasonably argue they’ve been paying into that fund for several years. They may then ask for some sort of compensation seeing as they won’t benefit from it.

An alternative is to agree to keep the policy going but change the beneficiary. If you have children together, you might agree to transfer the payout into a trust if either of you dies. That means you both know your children would receive the money.