Life Insurance and Divorce: What Happens to Your Policy?

What Happens to a Joint Life Insurance Policy?

If you have a joint life insurance policy, you have three options after divorce:

• Split into two separate policies – Most insurers allow you to split a joint policy into two individual policies. Both ex-partners keep their cover at the same terms. This is usually the best option
• One partner takes over the policy – One person keeps the policy and the other is removed. The remaining person may need to adjust the cover amount
• Cancel the policy – Both partners cancel and take out new individual policies. This may be more expensive as you are both older now

Updating Your Beneficiaries

After divorce, one of the most critical steps is updating your policy beneficiaries. If your ex-spouse is still named as the beneficiary and you die, the payout could go to them rather than your children or new partner.

If your policy is written in trust, you need to update the trust deed. If it is not in trust, update the nomination with your insurer immediately.

Court-Ordered Life Insurance

In some divorce settlements, the court may order one or both parties to maintain life insurance. This is common when:

• One parent pays child maintenance – life insurance ensures payments continue if the paying parent dies
• One party keeps the family home – life insurance covers the mortgage so children are not displaced
• There is a spousal maintenance order – cover ensures the maintenance obligation is met

Protecting Your Children

Whatever your relationship with your ex, your children’s financial security should be the priority. Consider:

• Both parents having individual life insurance to cover their responsibilities to the children
• Writing policies in trust with the children as beneficiaries
• Family income benefit to provide regular income for childcare costs