What happens to a life insurance policy after a divorce?

According to the Office of National Statistics, 42% of marriages in England and Wales end in divorce. Meanwhile, 46.2% of the working public has a life insurance policy, with 40% of these joint policies. At the convergence of these two statistics is a thorny financial and legal matter: what you do with a life insurance policy after a divorce.

In This Guide:

• Life insurance and divorce
• Divorcing with individual life insurance policies
• Divorcing with a joint life insurance policy
• Divorcing with a mortgage life insurance policy
• What If You Need New Life Insurance After Divorce?
• Don’t Forget Death in Service Benefit
• Final Thoughts

Life insurance and divorce

Divorce can be an emotional and financial minefield. From dividing assets and negotiating divorce settlements to establishing custody of dependent children, there's a lot to untangle, and your life insurance policy should not be overlooked, especially if your ex spouse was named as the beneficiary and there are children involved. Whether you hold a single life insurance policy, a joint life insurance policy, or mortgage life insurance, divorce changes your financial protection needs. It's important to review your existing policy and update it to reflect your new circumstances.

How complex this process will be will depend on the type of life insurance you hold; single or joint and whether they're linked to a mortgage on a co-owned property. Below we run down the steps of handling these various policies following a divorce and the complications that might arise, and when it is time to consider a new policy.

Divorcing with individual life insurance policies

Managing life insurance after a divorce will be easiest if you and/or your partner hold separate life insurance policies. However, it's more likely than not that your former spouse was listed as the primary beneficiary of your single policy and you'll likely want to remove your ex spouse, especially if you don't share children.

To update your life insurance beneficiary, contact your life insurance provider to change the person named on the policy. This is generally accomplished with a change of beneficiary form. Most policies will allow you to change beneficiaries at any time for any reason, but be aware of any potential cancellation fee. Don’t forget to also revise your will, or, if the policy is in a trust, adjust the terms of the discretionary trust or absolute trust accordingly.

However, you might want to keep your partner as the beneficiary of any life insurance payment when considering life insurance after divorce, if they're the primary caregiver of your dependent children, and rely on spousal or child maintenance payments from you as financial support. As part of the divorce settlement, the court required both parties to maintain life insurance to secure future child maintenance payments. Alternatively, your ex-partner might want to take out a new policy on your life, to protect the income they receive from maintenance payments.

Divorcing with a joint life insurance policy

Married couples often obtian joint life insurance policies, a policy for both of them that pays out once, generally following the death of the first spouse. 40% of life insurance policies sold in the UK are joint policies shared between spouses or partners. A joint life cover insurance policy can be a more affordable way of obtaining life insurance for married couples but unfortunately they're inflexible when life circumstances change. A joint life insurance typically cannot be divided (although there are some exceptions (see below).

That leaves you with two options: either to cancel the policy or to have one partner take it over.

Cancel the Joint Policy

If you have a whole of life insurance policy, there will be typically a surrender value you can obtain when cancelling it. The amount you receive will be equivalent to the value of the fund you have amassed, but minus fees and penalties. You won't recoup all of the premiums you paid but you can claw back some money.

Alternatively, one partner might want to take over a joint policy. This might make financial sense if some years have elapsed since it was taken out and you'd face higher premiums now that you're at a more advanced age. But you have to be able to keep up with the payments yourself.

 

Transfer the Policy to One Partner

Sometimes, one partner may want to take over the joint policy to maintain life cover without having to apply for new cover at a higher age and potentially higher premiums. This involves signing a legal document to officially transfer ownership, which must be submitted to your insurance provider.

Additionally, following a divorce you'll need to ensure the sum insured is now appropriate, given your changing life circumstances. If you're maintaining a house and parenting children on your own, you may need a new life insurance policy with a higher sum insured.

However, some policies will allow you to adjust an existing policy you take over on your own without further underwriting, do take this into account when you compare life insurance policies. For instance, a life change benefit can allow you to increase the sum assured, sometimes by as much as 100%. Some insurers also grant you a separation benefit, allowing you divide a joint policy, either linked to a mortgage or not, into two separate policies, if you apply within a certain time period after your separation (often 90 days). These benefits are typically only available to customers under a certain age, however, 55 is typically the cutoff.

Divorcing with a mortgage life insurance policy

Many couples have joint mortgage life insurance policies, which pays off the outstanding balance on the mortgage on the home they own together following the death of one of them. Many mortgage lenders will require you take out such a policy as a condition of the loan, to ensure they receive their money back in a lump sum .

Ultimately, how you manage a mortgage life insurance policy following a divorce will depend on how you deal with the property.

If you decide to sell it as part of the division of assets, you'll obviously want to cancel any life insurance policy linked to the mortgage on it.

If you one of takes over possession of the property, buying out the other and obtaining a new mortgage, you also won't need to keep the life insurance policy and can cancel it.

However, sometimes couples maintain joint ownership of a property following a divorce, often so children can remain in the same home, and in that case you may want to keep the life insurance policy linked to it, if you're continuing to pay the mortgage together.

Don’t Forget Death in Service Benefit

If you're employed, check whether your workplace provides a death in service benefit. This employer-provided life insurance payout can offer additional financial protection, but you’ll want to update the named beneficiary following a divorce.

Final Thoughts

Divorce is rarely easy, but having the right life insurance can make your transition smoother and more secure. Whether that means adjusting your existing policy, taking out a new life insurance plan, or reviewing your financial goals, it's worth bearing in mind what happens to life insurance and how your policy can continue to protect those who matter most.

Need help finding the right life insurance policy after divorce? Compare quotes today and secure peace of mind for your next chapter.