What to Do With Your Life Insurance After a Divorce

by Kerri-Lynn McAllister September 21, 2016 / No Comments

Life insurance is a sign of lasting love because the death benefit is paid after you’re gone. But if you get divorced, you may want to make a few changes.

Here’s what to do with your life insurance after a divorce:

Check the ownership

The owner of a life insurance policy has rights that the life or lives insured do not. If your partner is the owner, your coverage can be canceled or the beneficiary can be changed without your knowledge or agreement.

Quick tip: Since life is unpredictable, consider separate policies from the outset. The price difference is generally small and you’ll have more flexibility.

Change your beneficiary

If your beneficiary is your former partner, is that the right choice for the future?

If you’re not sure who to make your new beneficiary or beneficiaries, you could pick your estate for the time being. This isn’t optimal as your permanent choice because your estate is subject to probate fees (in Ontario, it’s now called the estate administration tax) but it’s a good first step.

Quick tip: Revocable beneficiary designations give you flexibility. If your beneficiary is irrevocable, you can’t make a change without your beneficiary’s permission.

Disentangle

You and your ex may be insured on the same insurance policy. This saves money but there’s a cost, which is flexibility.

As examples, you may have:

  • Joint first to die (JFTD) coverage for a shared obligation like a mortgage; or
  • One of you as the base insured and the other covered by a rider.

You may be able to exchange your combined plan for two separate policies. The best time to find out is before you buy. If you don’t want your partner to know, phone your advisor or the potential life insurance company directly. Verbal assurances aren’t enough. Get a sample insurance contract, ask for the relevant sections to be highlighted, and verify for yourself.

Check the suitability

Your insurance needs change. If you have children, maybe you need more life insurance. If you’ve paid off the mortgage, perhaps you need less. The period for which you need insurance also changes and warrants a review.

If you need more coverage right away, some products are quick issue. They cost more but save you time.

Consider a new advisor

If your ex-partner selected your insurance advisor, you may want to switch to another one to ensure your privacy.

Get your custom life insurance quote by completing this form.

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Flickr: Carsten Tolkmit