Some lawyers and even some IFAs have a tendency to overlook insurance issues upon divorce in favour of considering the often more major investment and possibilities found in a pension. This can be unfortunate and there are traps for the unwary in a financial divorce settlement.
Premium payments are quite often ordered by the Court so as to maintain cover, but there are some things to watch for nevertheless:
Medical insurance cover
Let’s say that the wife has a medical history that might lead to a fresh application for medical insurance being declined, or accepted with many exclusions or at a high premium. Then continuity of cover of the existing policy may be a relevant consideration. It can be possible to provide for that by way of an undertaking in a consent order. The moral of the stroy is to watch out for the temptation to simply agree a premium payment at the same rate as the existing policy.
Life insurance and endowments
The court has jurisdiction to order the transfer of a life policy, but it does not have the power to order a party to take out a life policy.
Notice of assignment must be given to the insurers and an acknowledgement should be sought. The receipted notice of assignment should be placed with the original policy document. Most companies produce their own pro forma for assignment but these should be checked carefully to ensure that they achieve what the parties intend.
Where life insurance is an issue the parties can agree that the paying party continue to maintain an existing policy for the benefit of the other.
Where a fresh policy is required and the paying party agrees to take out and pay for that cover, it is important that that party should only undertake to use best endeavours to take such steps. This will then cover the situation where the life to be assured is uninsurable. The intended beneficiary of the policy should also consider other provision that would secure their position in those circumstances.
An insurable interest?
A former spouse or civil partner does not have an unlimited insurable interest in the life of the other. A former spouse would, however, have a limited insurable interest to the extent of loss of maintenance. For this reason it may be necessary for the life assured to affect a new policy.
In my opinion, an IFA should be working with the lawyers from the very start to help identify these issues and solve them or help identify the cost of solving them.