Alan Lakey, partner of Hemel Hempstead-based IFA Highclere Financial Services, says an assessment has to be made of current and future protection requirements when a couple divorce. Affordability is an issue as is the health of the parties, he adds.
Mr Lakey says: “One or both individuals may now have needs different to the current policy and this must be established. Also, it might be that the plan benefits have to be adjusted or trimmed to meet anticipated affordability.
“If ill-health is an issue it may be that the existing plan should be retained so that the valuable life or health cover remains on current terms regardless of whether it is not exactly what is needed. This is the trade-off.”
If either party has death-in-service benefits via an employer or pension death benefits then Mr Lakey says this needs examining to ensure that the ultimate beneficiary is correctly named.
He says: “Many people forget this and benefits can end up being paid to an ex-spouse even though there has been a re-marriage.”
It is important to establish whether the client is still financially reliant upon their ex or whether they have an ex-partner reliant on them, according to Emma Thomson, life office relationship director of LifeSearch.
If so, Ms Thomson says she will need to know what financial arrangements have been made for the partner, whether any children are involved, and if this is likely to alter in the future, for example when the children reach adulthood.
Establishing whether the client now has a new partner or family to support is also key, she adds.
Ms Thomson says: “It might be that they have become over-insured if there are no financial ties with their ex anymore, especially if they have perhaps sold a jointly-owned property, so the adviser should discuss with the client the pros and cons of whether to cancel cover or to keep it in place for when they find a new partner and/or property.”
Mike Allison, head of protection at Paradigm Protect, says advisers need to individually assess the liabilities of each partner taking into consideration all the new ones post-divorce, for example mortgage repayments and all other liabilities.
He says: “They will need to look at life, critical illness, income protection and family protection as appropriate, ensuring that they are affordable.”
As well as the normal requirements to protect mortgage or rent and living expenses, Mr Allison says any review should take all new liabilities into consideration including maintenance payments for both partners.
Mr Allison says products such as family income benefit can be taken out at the divorce settlement to continue to ensure maintenance continues to be paid in the event of death or critical illness. Income protection can also be taken into consideration for the same purpose if there is any long-term incapacity.
Phil Jeynes, head of account development at PruProtect, says all advisers need to remember that protection policies need to be checked on a regular basis, irrespective of life events such as divorce, to make sure they meet a person’s needs.