Life’s journey is as unpredictable as life itself. Needless to say, it is financially prudent to mitigate risks and losses caused due to loss of life. However, life is a roller coaster ride by itself and even the best of relationships can turn sour with time. Marriage is no exception.
Marriages may be made in heaven, but divorces are the hellish reality of today’s upwardly mobile, aspirational professionals. Whereas you must do everything possible to stay afloat in the sacred institution of marriage, it is wiser to know what should be done in case a divorce becomes inevitable. How does divorce affect assets, life insurance policy in particular?
Life Insurance is a broad umbrella term that has multiple offerings under it. Different life insurance plans are designed with specific objectives and focus areas. Some of them are listed below:
1. Term Life Insurance Plan:These plans are pure life covers carrying a fixed amount as a “sum assured” that is payable on the unfortunate demise of the insured. Term plans are affordable, offer protection and can also be used to create an inheritance. Although the emotional loss can never be made up for, the loss of family income can be backed by life insurance. The iSelect Smart360 Term Plan is an example of a comprehensive term life insurance policy offered by Canara HSBC Life Insurance Company.
2. Endowment Plan:An endowment plan is designed as a safe investment strategy with an add-on life cover. At the time of maturity, endowment plans pay back the guaranteed amount + applicable bonuses + guaranteed annual additions, if any. Such policies also extend life cover even after the maturity value is disbursed.
3. Pension or Annuity Plans:Pension plans give you pay outs in the form of annuities post-retirement. Life cover is also extended as a double benefit.
4. Annuity Plan Strategy:
ULIPs are a lot like endowment plans but the investment component here can be exposed to equities for wealth creation. Needless to say, this too comes with a life cover.
What to do with your Life Insurance Policy after a Divorce?
1. Update Beneficiaries
The purpose of life insurance is to create financial protection for your family in case fate snatches you from them. It is devastating if you happen to be the only or major breadwinner in the family. Most people nominate their spouses as beneficiaries so that the family gets money to live on. But what if you go through a divorce?
Most life insurance policies are flexible and allow changing the nomination or beneficiary named in the policy. The insurance company office or even your insurance advisor can help you update the name in the records.
2. EIA – Electronic Insurance Account
EIA stands for e-Insurance Account or 'Electronic Insurance Account' which stores the insurance policy documents of policyholders in an electronic format. This e-Insurance Account provides access to the insurance portfolio on the Internet.
Advantages of an EIA:
a) No physical policy documents
b) Manage your life insurance policies in one account
c) Update contact details in all your policies in one go
d) Opening EIA is free
Insurance Regulatory and Development Authority (IRDA) has granted the following four entities to act as 'Insurance Repositories' that are authorized to open EIA:
a) NSDL Database Management Limited
b) Central Insurance Repository Limited
c) Karvy Insurance Repository Limited
d) CAMS Repository Services Limited
What to Do About a Joint Life Insurance?
Married couples often sign up for joint life insurance policies. These policies pay out once at the demise of the first spouse and then a second time upon the demise of the second. A joint life insurance policy is generally more affordable for married couples. But they can be rigid when life doesn’t go as anticipated. Joint life insurance generally cannot be divided. However, a few exceptions are listed below:
a) If the policy has an investment component, you can surrender the policy and avail the fund value. This can be divided between the spouses in line with the divorce agreement.
b) Either spouse can assign the policy to the other. Both partners should be willing to this arrangement and the spouse taking over should be ready to pay the future premiums himself/herself. Thus, the policy premiums and benefits will belong to only the assignee.
c) If it is a pure term plan, simply cancelling the policy is an option if either spouse does not want the other to get the sum assured in case of demise.
How to Treat Child Insurance Plans?
This is best handled through dialogue and assigning the rights to either spouse. You can base the assignment on the primary custodian of the child or simply on the capability to pay premiums.
In both cases, the child remains the beneficiary of the policy and its proceeds. Until the child attains a majority one of the parents will have to remain a guardian for the child in the policy.
Health and Other Insurance Plans
A divorce is a difficult choice in life but once the decision is made, it is best to sort out issues related to finance and insurance more amicably. When relationships change, so do decisions related to insurance.
With policies like family Mediclaim, the spouse paying the premium can continue the policy. If you have children, the custody and premium payments to continue the insurance plan should be determined. The spouse who will be left without insurance must do a proper financial planning to buy a new life insurance policy.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.