The Impact of Divorce on Your Life Insurance
Divorce does not automatically cancel or change your life insurance policy, but it does require you to actively review and update your arrangements. Failing to do so can result in an ex-spouse receiving a payout you intended for your children, or being left uninsured during a vulnerable financial period.
Joint Life Insurance and Divorce
Joint life insurance policies are particularly problematic when a relationship ends. A joint policy:
- Cannot simply be split into two individual policies
- Continues to cover both parties, meaning both are still paying for a policy that benefits the other
- Pays out once — on the first death — regardless of the circumstances of the divorce
Options for joint policies on divorce include:
- Cancel and reapply: Both parties cancel the joint policy and each takes out a new individual policy. The major downside is that premiums will reflect your current, older age — potentially significantly higher than when the original policy was taken out.
- Assignment to one party: Some insurers allow the policy to be assigned to one party, who then takes over sole ownership and premium payment. The other party loses all benefits.
- Continuation as is: Not usually advisable, as both parties remain linked by the policy.
Changing Beneficiaries After Divorce
If you have a single life insurance policy, you should review and update your nominated beneficiary after divorce. If your policy is written in trust, you need to update the trust deed to ensure your former spouse is not the named beneficiary.
Failing to update beneficiaries is a common and costly mistake. In some cases, without an updated trust or nomination, a payout could form part of the estate and be distributed through probate — potentially taking months and including your ex-spouse if they are named in the trust.
After Divorce: What You Need to Do
- Review all existing life insurance policies and identify who is nominated as beneficiary
- Update trust deeds if your policy is written in trust
- Consider cancelling joint policies and taking out individual cover
- Review whether your current sum assured still reflects your financial obligations (e.g. child maintenance, a sole mortgage)
- Ensure your children or dependants are protected if both parents currently hold only a joint policy
Frequently Asked Questions
No. Divorce does not automatically cancel or alter your life insurance in any way. You must actively review and update all policies, beneficiary nominations, and any trust arrangements. Failing to do so can result in a payout going to your ex-spouse rather than your children or intended beneficiaries.
A joint life insurance policy cannot simply be split on divorce. Options include cancelling the joint policy and each partner taking out new individual cover (at current, older ages), or assigning the policy to one party. You should seek advice from your adviser and discuss options with your insurer before making any changes to an existing policy.