The journey of life is as unpredictable as life itself. Needless to say, mitigating risks and losses caused by loss of life are financially prudent. However, life is a roller coaster ride in and of itself, and even the best relationships can deteriorate over time. Marriage is no different.
Divorces are the dreadful reality of today’s upwardly mobile, aspirational professionals. Whereas you must do everything possible to keep the sacred institution of marriage afloat, it is wiser to know what to do if divorce becomes unavoidable. How does divorce affect assets, particularly life insurance policies?
Must Read – Types of Individual and Group Health Insurance Plans In India
What To Do With Your Life Insurance Policy Following a Divorce?
Revise Beneficiaries
The goal of any life insurance policy is to provide crucial financial security for your family in the event that you are taken from them by fate. It is especially devastating if you are the family’s sole or primary breadwinner. Most people name their spouses as beneficiaries so that the family can live comfortably. But what if you have a divorce?
Most life insurance policies are adaptable, allowing the nominee or beneficiary to be changed. You can update the name in the records by contacting the insurance company office or your insurance advisor.
What Should You Do About Joint Life Insurance?
Married couples frequently purchase joint life insurance policies. These policies pay out once upon the death of the first spouse and again upon the death of the second. For married couples, a joint life insurance policy is usually more affordable. When things don’t go as planned, they can become rigid. In most cases, joint life insurance cannot be divided. However, the following are some exceptions:
a) If the policy includes an investment component, such as a unit-linked insurance plan, you can surrender it and receive the fund value. This can be divided between spouses according to the terms of the divorce agreement.
b) Either spouse has the option of assigning the policy to the other. Both partners must agree to this arrangement, and the spouse taking over must be willing to pay the future premiums himself/herself. Consequently, only the assignee will be entitled to the policy premiums and benefits.
c) If it is a pure-term plan, simply canceling the policy is an option if either spouse does not want the sum assured to be paid to the other in the event of death.
Must Read – What is Unit Linked Insurance Plan (ULIP)? Benefits, Top 5 ULIP Plans & FAQs
How Should Child Insurance Plans Be Handled?
This is best handled through discussion and delegating rights to either spouse. The assignment can be based on the primary custodian of the child or simply on the ability to pay premiums.
In both cases, the child is the policy’s and its proceeds’ beneficiary. In the policy, one of the parents must remain a guardian for the child until the child reaches the age of majority.
Plans for Health and Other Insurance
Divorce is a difficult decision to make in life, but once made, it is best to resolve financial and insurance issues amicably. When relationships change, so do insurance decisions.
With policies such as family Mediclaim, the spouse who pays the premium can keep the policy. If you have children, you must decide on custody and premium payments in order to keep the insurance plan. The spouse who will be left without insurance must conduct thorough financial planning in order to purchase a new life insurance policy.
