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Life insurance actions to take when divorcing

It is becoming increasingly popular these days for people to take out life insurance policies when they are married and have young children. Normally it would be the breadwinner in the marriage.

How life insurance works

With life insurance policies a person pays a certain amount of money to an insurance company like Momentum, Old Mutual or Sanlam for example. Your life would be insured for a certain amount of money. Before you qualify for life insurance you would need to have a thorough medical examination done. You would need to fill in a questionnaire where questions are asked relating to your health, such as whether you smoke or drink, and if so, how much.

I would say life insurance, if affordable, when planning financially, is just as important as medical aid, particularly when there are young children in the picture. Anybody could die at anytime, and one has to make sure that there will be funds available to support the children in the event of an untimely death.

Father with children

Change your will on divorce

When couples are married they often appoint each other as the beneficiary of their life insurance policy. In divorce settlement negotiations parties often argue that they be retained as beneficiary of the policy once the divorce is through. A divorce is sometimes settled on the basis that the man for example retains his wife as beneficiary on his life insurance policy until the children are eighteen or self-supporting.

I advise my clients to change their wills as soon as possible when going through a divorce. If you die:

within three months of your divorce, your ex-spouse will not inherit in terms of your Will unless a contrary intention is indicated.
But if you die more than three months after your divorce and did not change your Will, your ex-spouse, if named as a beneficiary, will inherit in terms of that Will.

If your ex-spouse is named as beneficiary of your life insurance policy and you get divorced, this should be changed immediately. The ex-spouse may, if you die, inherit a large sum of money from you and spend it on him/ herself and perhaps even their new partner. I would urge people to name their children as beneficiaries of their life insurance, particularly if the children are under eighteen as there is in any event a legal duty to miantain children up until the age of eighteen.

Beneficiaries should have a vested interest

Couples must plan what happens to a life assurance policy covering early death and/ or disability when a relationship fails. You need to have a vested (insurable) interest to take out a policy on the life of another person. This means one person in a couple may take out a policy on the other as they have a vested (financial) interest in each other.

Life assured vs Owner of Policy

A contract of insurance is with the owner of the policy and not the life assured. The life assured has no right to the policy unless the life assured is also the owner. At divorce the owner can continue with the policy as there was insurable interest at inception.

Joint life policies

In a break-up account must be taken of existing life assurance policies and the need for any new policies. If there is a joint life policy, the parties can request for the policy to be split between them. The ownership of a policy can also be ceded from one partner to another.

Risk management

Life insurance policies play a big role in divorce matters and are an important part of financial planning. Many people do not believe in it, but I see it as a form of risk management which, if affordable, is money well spent, and essential when there are young children who are dependant on you.

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