Following a divorce there are assets that need sorting and life insurance is one of them.
Separation and divorce can be very stressful for all parties concerned but it's an all too common fact of modern life. Just like the division of other assets, what to do with life insurance policy following divorce is an important consideration. There are a number of options available to you to make sure the outcome is fair to both parties.
How do I manage my life insurance policy and change beneficiaries following separation?
The way you sort your policy depends on how the policy was bought. You may of bought cover with
- One or two seperate policies or;
- A joint policy
If life insurance that was bought with separate policies
In the event that you and your partner had a separate life insurance policies, the management of the policy is relatively straightforward. since the policies are in no way joined, you can simply update your beneficiaries (who is paid out in the event of a death).
Steps to changing your beneficiary
- Contact your estate planner or superfund trustee. If you have an estate planner get in touch with them to update your policy.
- Contact your insurer. If you don't have a planner or a trustee, get in touch with your insurer. They will be able to provide you with the requisite forms for changing your beneficiaries.
- Complete the forms. Fill out necessary documentation and return them to your insurer.
Options for people with joint life insurance after divorce
This is a little more tricky. But there are a few options out there.
1. Maintain the policy
Many divorced couples simply maintain the policy after their separation and agree to terms for managing the premium payment. For example, you could manage the premium payment of the policy and your ex-partner would simply direct regular funds to your account over the life of the policy. It's usually best to have some form of legal agreement in place if this is the avenue the you decide to take.
2. One policyholder maintain the policy
Another option is to transferred the ownership of the policy into either you or your ex's name. This will mean one of you will need to find a new policy. The problem with this solution is you'll have to work out a payment for premiums paid in the past.
3. Cancel the policy and take out separate policies
One final option if you have a couples life insurance policy is to simply cancel the policy. This option has its pros and cons
- Simple solution
- No need to update beneficiaries
- Ability to tailor new cover
- Risk of increased premiums if you took out level premiums at an early age
- May have to undergo medical underwriting
Should you keep the policy after divorce?
You may not want to bother with life insurance after the breakup, since you no longer have a partner who relies on you. However, if you have family and kids then it's important you ensure you have adequate cover in place. If you're now the sole provider in your home, it becomes even more important to cover that offers the necessary benefits and features. Prior to your separation or divorce your kids would always have had one of you to rely on should something happen to the other.
Whether you amend your existing life insurance policy or whether you end up switching insurers, you should make sure you take out a policy that is suited to your needs, provides adequate cover, and is affordable.
Podcast: Co-founder of finder.com.au Fred Schebesta discusses the challenges of divorce
Skip ahead to 39:05 for the chat about divorce.
Reviewing your life insurance after a divorce settlement
If you are interested in adjusting your current life insurance policy following divorce or cancelling it altogether, here are some key considerations to make:
- Sum-insured based on remaining financial obligations
- Changes to your occupation and how this may impact premiums
- Changes to your salary
- New assets that you have acquired
- Any life cover that has accumulated in your superannuation
- Any additional cover options e.g. TPD or Trauma Cover
- Adjustment of your policy beneficiaries
- Policy design including payment of your premiums
- How your health may have changed since taking out your first policy
These are just some of the things you will need to consider if reviewing your current life policy following divorce. An insurance specialist can help you assess your current situation to adjust your current cover or find a new policy.