What Happens to Life Insurance Policy after Divorce

by Vinaya HS on March 14, 2017

in Finance

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Marriage is a huge event in an individual’s life. Couples make several commitments when they are married and financial responsibility is one such commitment. Both spouses must avail of life coverage to protect themselves from future uncertainties. A crisp knowledge of income tax slabs would help one to avail maximum tax benefits via life insurance.

Although you may find it unpleasant to think about death just when you commence the new journey of your life, it is important to consider the same. Purchasing a policy earlier helps you reduce the premium, which may save a significant amount during the entire tenure of the policy.

Insurance is beneficial for you and your spouse to meet various financial goals during your lives. This financial product is useful when you decide to buy a home, start a family, plan for your children education, and retirement.

However, if you, unfortunately, were to get divorced, it would impact your finances. In the western countries, it is common for couples to lay down the terms and conditions in case they are divorced in the future. However, this is not common amongst Indian couples where marriage is considered as a sacred union of two people.

Here are three situations you must consider while discussing the divorce terms.

1. Divorce settlement

When your divorce is mutual, both would agree on the terms including the financial aspects of your separation. Divorce settlements may or may not include assets and monetary terms. While discussing the terms, you must not let your emotions take over. It is recommended you list down all your assets, such as retirement plans, life insurance policies, home, and vehicles. After agreeing to all the settlement terms, you must reaffirm these separation details in the court of law.

2. Handling nominations

There is a high possibility that you have included your spouse’s name as the nominee in your insurance cover. The first thing when you are divorced is to remove your former partner’s name as the nominee. You may include any blood relative as the new nominee in your insurance plan. To make this modification, you would have to submit a letter mentioning the name of the new nominee to the insurance provider.

3. Spouse as an assignee

If the new nominee is a minor, you would require an appointee. This individual is the caretaker of the nominee in case you pass away within the policy tenure or at the time of maturity. Furthermore, complications may arise if you have chosen your spouse as an assignee. Assignment implies transferring the liabilities and rights provided by the life insurance plan to the assignee. When your spouse is an assignee, he will exclusively receive all the rights. In case you need to make any modifications to the insurance policy, you would need approval from the current assignee. Therefore, to avoid any difficulties, it is advisable for your spouse to reassign the plan in your favor before the divorce is finalized.
If you hold joint plans, you may have to surrender the policy or allow it to lapse because insurers do not allow splitting these types of insurance plans. Policies that comprise some investment component (like endowment plans) are often settled on the basis of each partner’s contribution. Divorce is emotionally difficult; however, certain difficulties are avoidable with the help of a little pre-planning.

About HDFC Life

HDFC Life, one of India’s leading private life insurance companies promoted by HDFC Ltd. & Standard Life Ltd., offers a range of individual and group insurance solutions. HDFC Life’s product portfolio comprises solutions, which meet various customer needs such as Protection, Pension, Savings, Investment and Health.

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