*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
Any major change in life is bound to have an impact on your finances. Be it a marriage, the birth of a child, the death of someone close, or a divorce, you must be prepared for financial turbulence that ensues from the event. Insurance policies are affected by such changes in life, too. This is especially true of divorce, which is an unforeseen event for anyone who must go for it.
In the West, it is common to lay down the terms of divorce at the time of the wedding. But in India, where marriage is considered a sacred union for life, doing so is extremely rare.
This is despite the rising rate of divorce, especially in urban areas. Mumbai, Delhi, and Bangalore are among the cities that have seen an alarming rise in the divorce rate in recent years. For instance, there were five judges who handled divorce cases in Delhi in 2005. In eight years, the number of judges had gone up to 15.
In cases of mutual divorce, the husband and the wife settle the financial aspects of their separation on terms that are acceptable to both of them. The details and the mode of the settlement lie in the hands of the parties involved. A divorce settlement can include any or no asset and amount of money. The couple only has to reaffirm the details of their separation in the court.
Importantly, the emotional aspects of the divorce should not be allowed to muddle financial matters. It is imperative that the husband and the wife list down all of their savings and assets, including retirement policies, house, car, and life insurance. They can take the help of a financial planner to guide them in the distribution of assets.
The first step a person going in for a divorce must take is remove the name of the spouse as the nominee in life insurance policies . Each of the partners involved in the divorce proceedings can select any of their blood relatives as the new nominee. For this, a letter mentioning the need for the change in nomination must be submitted to the insurer to make sure that the person selected as the new nominee has ‘insurable interest’ regarding the life covered. Someone has an ‘insurable interest’ when the insured’s death directly leads to financial losses.
It is recommended that a person nominates his children as nominees. Of course, a former spouse can also be trusted to give the proceeds of the insurance policies to the correct beneficiaries.
Insurance plans require nominees so that claims can be disposed of quickly. In case the nominee is not the legal claimant of the proceeds, it is their duty to pass on the benefits to the legal heirs in accordance with the law or the will of the policyholder.
An appointee must be selected in case the nominee is a minor. The appointee will act as a caretaker in case of the death of the policyholder or if the plan matures.
More complications can arise in case one partner names the other an ‘assignee.’ Assignment means the transfer of both rights and liabilities of the insurance plan to the assignee. This means that your spouse will have the sole rights regarding the plan. Any changes to the plan, including change of nominee or reassignment, will need the approval of the current assignee. Therefore, you must ensure that your spouse reassigns you the plan before the divorce.
Policies such as joint life plans, which are not particularly popular in India, may have to be allowed to lapse as insurers don’t split such plans.
Similarly, plans with an investment component, including endowment policies and ULIP Plans are settled according to the contribution of each partner.
Health insurance companies provide the choice of removing the name of a beneficiary during the plan term, which means that the principal proposer is enabled to remove the name of the spouse.
A divorce can be difficult for both partners. But planning can make things easier, specifically when it comes to finances.