For couples going through a separation or divorce, emotions can run high, and there are numerous decisions to be made. Finances, naturally, are a central part of these discussions. Often overlooked but equally important is ensuring that your insurance coverage still meets your evolving needs. Whether it’s life, health, or car insurance, your policies may require significant adjustments to reflect your new circumstances.
The Importance of Reassessing Insurance After Separation
As part of the process of separating your lives, it’s crucial to reassess all your financial agreements and arrangements, including your insurance policies. These policies, which might have once been viewed as joint safety nets, may no longer suit your needs. Divorce can change everything from your day-to-day budgeting to your long-term financial planning, and insurance should be part of that shift. Failing to update your coverage can leave gaps in your financial protection, which could have lasting consequences.
Separating Finances – What Happens to Your Insurance Policies?
When it comes to dividing assets after a divorce, insurance policies are often forgotten but are just as important as homes, cars, superannuation, business interests, and investments. Each of these assets needs to be carefully considered to ensure that both parties are treated fairly.
With life insurance, however, the process can be more complicated than splitting other assets. Whether you can update an existing policy will depend on the structure and ownership of the policy in question. There are several types of policy ownership, each with its own implications:
- Individual Ownership: If the policy is individually owned, the person who owns the policy has the power to maintain, modify, or cancel it as they see fit. If you are the sole owner of a life insurance policy, you may want to update your beneficiaries if your former partner was previously named.
- Joint Ownership: With a jointly owned policy, both parties have an equal say over any changes to the policy. If you and your ex-spouse share a joint life insurance policy, you will both need to agree on any updates or changes, including cancelling the policy or altering the beneficiaries.
- Superannuation-Linked Life Insurance: If your life insurance is tied to your superannuation account, updating the policy after a divorce becomes a more complex process. The ownership structure is tied to your super, which may also be subject to family law splitting orders. It’s important to consult a financial advisor to determine how best to handle this type of arrangement.
While these are the more common types of ownership, there are other structures, such as company-owned or trust-held policies, which could also apply depending on your circumstances. If you’re unsure about the ownership or the best structure moving forward, it’s highly recommended to seek professional advice. Our team at Inspired Money is here to help guide you through these decisions, ensuring your financial protection remains intact as you move forward into the next chapter of your life.
Avoiding Unintended Consequences – Updating Your Beneficiaries
One of the most critical steps following a separation or divorce is to update your policy beneficiaries. For many couples, the default beneficiary is a spouse or partner, but following a divorce, it’s important to reassess this choice.
In many cases, couples with shared responsibilities—such as children or joint financial obligations—may choose to keep their ex-spouse as a beneficiary for the time being. However, as your circumstances evolve, it’s worth considering whether this remains the best option.
The beneficiary of your life insurance policy can be anyone, not just a partner or spouse. For example, you may choose to designate your children as beneficiaries. If your children are minors, it’s essential to establish a trust or appoint a legal guardian to manage the funds on their behalf until they come of age. Alternatively, you might decide to leave your benefits to a business partner, a close friend, or even a sibling.
Ultimately, the decision is a personal one and should align with your new life goals and financial responsibilities. Reviewing and updating your beneficiaries ensures that your life insurance payout goes to those who will most need it in the event of your passing.
How to Stay Protected – The Financial Implications of Divorce
Divorce can be one of the most challenging life events, both emotionally and financially. Besides dividing assets and custody arrangements, it’s essential to think about the long-term implications of the separation. This includes having the right insurance policies in place to protect your loved ones and secure your future.
For example, if you are the primary caregiver of your children, life insurance becomes even more critical. You may need to increase your coverage to ensure that your children are provided for in case of an unforeseen event. On the other hand, if your financial responsibilities have decreased, you might decide to lower your coverage, freeing up some funds to invest elsewhere.
No matter your situation, professional advice is invaluable during this time. At Inspired Money, we specialise in helping individuals navigate the complex financial landscape following a divorce. From reassessing life insurance needs to ensuring your superannuation and other assets are structured appropriately, we’re here to offer clarity and support.
Take Control of Your Financial Future – What You Can Do Now
If you’re currently going through a divorce or have recently separated, don’t wait to review your insurance policies. Taking control of your financial future begins with understanding what protections you have in place and making necessary adjustments to reflect your new circumstances. Updating your insurance is not just about safeguarding your finances today; it’s about ensuring that your loved ones are protected tomorrow.
Our team at Inspired Money is here to help you navigate these changes. We offer complimentary sessions to help you understand your current financial position, explore your insurance options, and develop a plan tailored to your specific needs. Contact us today to schedule a consultation and let us guide you toward a secure financial future.
Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it, you should consider its appropriateness for you, having regard to those factors. Before making any decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement.
