What Happens To Your Term Insurance After Divorce?
Marriages bring two people together, and it may be considered as an association where they share everything that they have. However, sometimes, a marriage doesn’t go as planned, and couples choose to separate.
Divorce is both an emotional and a financial challenge. As the couple split their marriage, they may also split their financial assets. In such cases, one often wonders what happens to a term insurance plan.
So, let’s understand.
Divorce and term insurance
A term insurance plan does not get impacted in the case of a divorce. If a spouse has bought the policy on his/her own life and made the other spouse the beneficiary or the nominee, the same can be changed post-divorce.
For instance, say Mr Sharma buys a policy and nominates his wife as the nominee/beneficiary. When the couple is divorced, Mr Sharma can change the nominee from Mrs Sharma to his children or parents. However, if the policy was bought under the The Married Women’s Property Act, 1874, this may not hold true. Lets read further to understand this better.
The Married Women’s Property Act, 1874¹
The Married Women’s Property Act of 1874 (MWP Act) was enacted to safeguard the property owned by a women from in-laws, relatives, and creditors after their husband’s passing. One can buy a term insurance policy under MWP Act. The husband can opt for the MWP clause and name his wife and/or children as the beneficiary of the policy. If opted, the benefit of the term plan goes solely to the named beneficiary. It separates the term plan from the rest of the estate of the husband and his creditors, or other family members cannot lay claim to the plan’s benefits.
So, if the husband has opted for the MWP Act in the term plan and named his wife as the beneficiary, divorce would not impact the plan. The wife will continue to remain the beneficiary even after a divorce.
Managing the policy after a divorce:
After a divorce, here are some tips that couples can follow in their life insurance plans –
- If it is a joint life policy, it is preferred to continue the policy till the chosen tenure. Term plans usually do not have a surrender benefit if you discontinue premium payment during the policy tenure. So, you might lose the benefit of the coverage and the premiums paid so far.
- The financial goals might change after a divorce. So, use the term plan calculator to assess your changing coverage needs. In the case of a shortfall, you can consider buying a new plan to supplement the coverage.
The bottom line
Know what happens to the coverage after a divorce and make the changes to manage your financial asset even after a split.
Thinking of buying Long Term Insurance? Here are 5 reasons why you should consider this!
As the head of a young family, you must now view life through a different lens
6 Life Events When You Should Review Your Term Insurance Coverage
Life can throw unexpected incidents your way when you least expect it. Some
Effect of BMI on Term Insurance
Health plays a crucial role in the calculation of your insurance premiums. It's
Know The 5 Factors That Impact Your Term Insurance Premium
A term insurance plan is the most popular and common insurance option