Notifying your insurance provider about the change is of utmost importance.
The separation of two married individuals brings forth both financial and emotional challenges. Prior to finalizing the divorce, addressing any insurance-related concerns becomes crucial, just as it would be for any other significant shifts in life circumstances or financial status.
Joint policy: Opting for joint life insurance policies is a common choice among married partners as it offers cost savings compared to purchasing two separate policies and simplifies policy management. Rakesh Goyal, Director at Probus Insurance Broker, explained, "In India, policyholders have the option to include or exclude their spouse from coverage. Accordingly, the insurance company must be informed of the decisions made by the divorcing couple, allowing them to either modify the policy to cover only one person or remove one entirely."
The Married Women’s Property Act (MWPA) of 1874 was established with the intention of safeguarding the property rights of married women. This legislation was put in place to address historical inequalities and grant married women greater independence in managing their property and possessions, independent of their husbands' control. "Within these arrangements, the husband can acquire an insurance policy and designate the wife as the beneficiary. Importantly, the policy allows the wife to continue receiving benefits even following a divorce."
Rakesh Goyal noted, "In the case of term policies that solely provide death benefits, the operational aspect may remain largely unaffected, and the term policy could carry on as usual. Nevertheless, since the nominated individual is the spouse, reconsidering this nomination would be advisable. Nevertheless, if the husband has named his wife as the beneficiary in the term policy under the MWPT Act, the divorce should not impact the plan's functioning."
Conventional policy: Among the prevalent policies in India, money-back plans and whole-life insurance policies stand out. A money return policy functions as a life insurance policy that offers periodic payouts to the policyholder throughout the policy's duration. Conversely, a whole life insurance policy provides coverage for the policyholder's entire lifetime. Rakesh Goyal suggested, "Within these types of policies, individuals have the option to waive the death benefits and opt for the policy's cash value instead. If the spouse is the designated nominee, it might be more advisable to withdraw the cash value and distribute the proceeds, rather than persisting with the policy."
What steps are recommended?
A considerable number of individuals have chosen their spouses as beneficiaries for their life insurance policies. "Upon divorcing, it is imperative to update the nomination by incorporating either parents' or children's names. Failing to revise the nominee information after divorce could result in the former spouse retaining the entitlement to policy benefits in the unfortunate event of the policyholder's demise. To guarantee the proper transfer of the policy's eventual value to the intended beneficiary in case of death, it's vital to regularly review and maintain accurate nominee details," advised Goyal.
