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Protection needs to consider when divorcing

This article is part of
Guide to Divorce and Protection

One area that is often ignored is insuring any maintenance payments, Alan Lakey, partner of Hemel Hempstead-based IFA Highclere Financial Services, warns.

He says a family income plan is ideal in that it can mirror both the amount and the payment period of the maintenance.

Mr Lakey says: “Generally it is the wife receiving maintenance payments for two or more children and she is able to insure her ex-husbands life to the extent of the payments.”

In essence a divorcing couple could be viewed, according to Phil Jeynes, head of account development at PruProtect, from a protection perspective as single people and so the types of policy most suitable would be ones based around protecting their ability to meet their financial commitments, even if they suffer an illness or injury which prevents them from working.

Therefore, Mr Jeynes says income protection and/or serious illness cover should be high on the agenda.

Of course, he says if children are involved or if one of the couple has a financial reliance on the other after the divorce, some death benefits would be crucial to make sure that dependants are able to maintain their standard of living in the event of death.

Mr Jeynes says: “Family income benefit is a cost effective way of covering this need as it can be tailored to provide a set annual amount, over a defined term.”

To calculate a divorcing person’s protection needs, Mr Jeynes says the adviser should drill down into the person’s financial commitments. Key questions for divorcees would be around any maintenance agreements which have been made and must be met, even if the person is in poor health.

Richard Sadler, head of retail protection at Zurich, says the splitting couple may wish to set up (or maintain) – rather than cancel - a joint life policy for the benefit of any children they have.

However Emma Thomson, life office relationship director of LifeSearch, says the need for a review will depend on whether the splitting couple continue to have financial ties, and whether their financial situation has changed significantly since the split for the better or for the worse.

If both parties split, have no children and no maintenance agreement, then Ms Thomson says their protection needs should be reviewed based on their own individual circumstances without the need to take into account their ex.

For example, if one partner had been financially supported by their ex who was the breadwinner, and who as a result did not have much protection in place because they relied on their partner’s income, Ms Thomson says they will need to begin from scratch.

Ms Thomson says they must work out what they need in order to be self-sufficient, which will include looking at income protection and critical illness cover. Unemployment and life cover could also be considerations.