Separation and divorce can be a harrowing and stressful time. Protection will often be the last thing that clients want to consider but when children or a substantial liability such as a mortgage is involved, keeping cover in place is vital. This week we consider how separation options can be used when a joint life policy is no longer suitable and which insurers include the best features to support this.

There are a number of reasons why clients may need to split an existing joint life policy into one or two single life plans. These include:

  • Divorce or dissolution of a civil partnership
  • Transferring a jointly owned mortgage to a single name
  • A life assured moving out and taking out a mortgage on a new house.
  • A life assured moving to a new address with no mortgage

All providers offer a separation option to some degree but don’t necessarily cover all four situations. Of those insurers listed below Canada Life, Royal London and Vitality explicitly state that their seperation option can only be used if the plan was taken out to cover a mortgage. 

Separation options are essentially another form of guaranteed insurability option and as such the new plan can be set up without any medical underwriting.  Like guaranteed insurability options some insurers will restrict who can exercise the option to those that have not been given a medical rating at outset of the original policy, however currently only AEGON and Aviva apply this restriction.

When the clients are looking to utilise the separation option, it can be a key to understand what terms will be offered to the client when separating the plan. The rates offered fall into two categories;

·         Rates at time of request – This means that the clients can switch the plan and will be given the rates available when the request is made.

·         Rates of the original plan – In this scenario the insurer would set the new plan up on the same rates that the client received when originally setting up the policy.

It will really depend on what the rates were when the original plan was set up compared to the rates now as to which will be more beneficial to the client.

Before exercising any form of guaranteed insurability option, it is essential to check if the client’s health or other underwriting factors have materially changed. If they have not and a new proposal can be expected to be accepted at ordinary rates, it is worth obtaining whole of market quotes to see if a different insurer would be cheaper. If changing insurer, it is important to get any new plan underwritten before cancelling the original policy or removing one life.

Where a policy has been in force for more than a couple of years a contract based on the rates when the original plan was taken out may be very attractive. The approach taken by each insurer is shown in the diagram below

When setting up cover for a couple two single life plans will generally be preferable. If the couple separate there is no issues in separating the cover and if one of the lives assured were unfortunate enough to claim, the other life would keep their cover in force without the need of setting up a new plan. Where joint life cover is selected however, it is worth understanding what separation options are available and when these can be used. There were 90,871 divorces in England and Wales in 2018 with 8% more divorce petitions in 2019, as such the ability to separate a joint life plan without the requirement for further underwriting may become a valuable commodity. 


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