Reassessing Protection Insurance During Divorce: Why You Shouldn’t Wait

While divorce usually gives you plenty to do, and it’s natural to focus on big decisions like dividing assets and pensions and figuring out living arrangements. However, one aspect that can be easily overlooked is your protection insurance. Life changes during divorce may affect your insurance needs, so it’s essential to reassess your policies as soon as your circumstances shift rather than waiting until everything is finalised.

In this blog, we’ll explore why reassessing your protection insurance early in the divorce process is essential and the key factors you should consider when updating or changing your policies.

1. Why Reassess Protection Insurance Early?

When you’re going through a divorce, many aspects of your financial life will change, such as how much you spend on bills and your assets and debts. So, your insurance needs are likely to shift as well. Some of the key reasons to reassess your protection insurance sooner rather than later include:

• Your Priorities Have Changed: Before the divorce, your insurance may have been set up to provide for your spouse and children. After the divorce, you might only need to protect your children, or perhaps you’ll need to focus on your own financial security.

• Financial Independence: Once the divorce is final, you may no longer be financially linked to your spouse, meaning that you’ll need to adjust your insurance to reflect your new, independent financial responsibilities.

• Changing Needs for Life Insurance: You might no longer need life insurance to protect your ex-spouse, but if you have children, maintaining life insurance is often essential to ensure their future financial security.

2. Don’t Cancel Existing Policies Until New Ones Are in Place

You mustn’t rush to cancel existing policies until you’ve secured new ones that fit your updated circumstances. Cancelling too soon could leave you unprotected during the divorce process, potentially risking your family’s financial security.

Life insurance and critical illness coverage can be crucial safety nets. If you cancel them before setting up new policies, you could be without coverage at a time when your financial situation is already in flux. It’s always best to speak with a financial adviser who can help you reassess what cover you need and ensure there’s no gap in your protection.

3. Joint Policies: Separating Coverage

If you and your spouse have a joint life insurance policy, it’s worth knowing that some providers will allow you to separate the policy into two single policies. This can often be a convenient option during divorce, as it means each person can continue with their own coverage without the hassle of applying for a new policy.

However, not all providers offer this option, and even if they do, the terms may vary. Some insurers may require both parties to agree to the split, and the coverage or premiums could differ once the policy is separated. Be sure to check with your provider to understand the rules around splitting joint life insurance, and seek financial advice to help decide whether it’s the right option.

4. Do You Still Need Life Insurance for Your Ex?

One of the biggest questions during a divorce is whether you still need life insurance to cover your ex-spouse. In many cases, this will depend on whether you have children or shared financial commitments.

• If You Have Children: Life insurance is often still essential, even if you’re no longer married. If your ex-spouse is financially responsible for your children (such as paying child maintenance), life insurance can ensure those payments continue if they pass away. In this scenario, you may consider taking out a policy on your ex-spouse, with your children as beneficiaries.

• If You Don’t Have Children: If there are no financial ties after the divorce, you might no longer need to insure your ex-spouse. Instead, you can focus on protecting your income or future and updating your beneficiaries to reflect any changes in your estate planning.

5. What About Trusts? Can You Change Them?

If your life insurance policy is written in trust, it’s crucial to review this as part of your divorce planning. A trust ensures that the payout from your life insurance policy is distributed according to your wishes, but divorce can complicate this.

• Can You Always Change the Trust Form? You can usually update your trust form and change the beneficiaries. However, certain situations might be more complex, especially if the trust was set up as an irrevocable trust or if your ex-spouse has certain legal rights to the proceeds.

Be sure to consult with a financial adviser or legal expert to understand whether any stipulations apply to your trust and how you can update it to reflect your new circumstances.

6. Income Protection and Critical Illness Cover

Divorce can dramatically change your financial situation, especially if you’re becoming financially independent for the first time in years. You may need to reassess how you protect your income and consider adding or adjusting income protection and critical illness coverage.

• Income Protection: If you previously relied on a spouse’s income, it’s now more important than ever to ensure that you have coverage in place if you can’t work due to illness or injury. Income protection can help replace your lost earnings and maintain your standard of living.

• Critical Illness Cover: If you’re diagnosed with a serious illness, critical illness cover provides a lump sum payment that can help cover medical costs, living expenses, or debts. With your financial circumstances changing, this kind of cover can provide peace of mind that you’ll have some financial support if life takes an unexpected turn.

7. Seeking Financial Advice Can Uncover Overlooked Details

Divorce can be an emotional and stressful time, and it’s easy to overlook important details about your insurance and financial planning. That’s why seeking financial advice early in the process is essential. I can help you:

• Identify Gaps in Your Protection: You might not realise that your coverage is insufficient or that certain areas of your life are underinsured. I can help you pinpoint areas that need attention.

• Ensure a Smooth Transition: I can help you adjust your existing policies, such as separating joint policies, updating trusts, and securing new life insurance, income protection or critical illness cover.

• Prepare for the Future: Divorce can change your financial future in ways you may not expect, and financial advice can ensure you’re prepared for whatever lies ahead.

Conclusion: Don’t Wait to Reassess Your Protection Insurance

Divorce is a life-changing event that can affect every part of your financial world, including your protection insurance. Rather than waiting until your divorce is finalised, it’s essential to reassess your insurance policies as soon as your circumstances start to change. Ensuring you have the right cover will protect your future and provide peace of mind as you transition into your new circumstances.

If you need help navigating the complexities of protection insurance during a divorce, you can reach me on:

Jamie Lowe- Financial Adviser and Director of True Self Wealth Ltd

Get in touch: 07469 712299 Jamie.Lowe@SJPP.co.uk

To find out more, visit www.truselfwealth.co.uk

To book an appointment, visit www.calendly.com/jamie-lowe-tsw

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Trusts are not regulated by the Financial Conduct Authority.

True Self Wealth Ltd is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website http://www.sjp.co.uk/products

SJP Approved 15/10/2024