Life insurance after separation or divorce

The designation does not change itself

This is the point that costs people the most, and it surprises almost everyone.

In most Canadian provinces, a divorce does not automatically revoke a beneficiary designation on a life insurance policy. If your former spouse is named and you never change it, they remain named. The insurer pays the person on the designation.

Rules differ by province and there are exceptions, and the safe assumption is that nothing has changed unless you changed it.

The result is a policy paying out to a former spouse years after a separation, while the current partner or the children receive nothing. It happens regularly and it is entirely avoidable.

If you have separated, review every beneficiary designation you hold. Individual policies, group coverage at work, and registered plans, which have their own designations. Do it now rather than after the paperwork settles.

The exception is where a designation is irrevocable, or where an agreement or court order requires the person to remain named. In those cases you cannot simply change it, and doing so may breach the order. Which is the situation you are in matters, so check the policy before acting.

When coverage is required by an agreement

Support obligations, whether spousal or child support, end on the payor’s death, and the person receiving them is left without that income. Requiring life insurance to secure the obligation is a standard response, and most separation agreements and many court orders include it.

The wording matters enormously, and a bare requirement to “maintain life insurance” is close to worthless. The things worth specifying:

The amount, and whether it reduces as the obligation reduces over time.

How long it must be maintained. Support obligations often have an end date, and coverage requirements should match rather than run indefinitely.

Who the beneficiary must be. Naming the recipient directly is one option; naming a trustee for the children is another where children are involved.

Whether the designation is irrevocable. This is the strongest protection and is discussed below.

Proof of continued coverage. Nobody checks by default.

If you are the one relying on it

The obligation is only as good as your ability to know it is being met.

An ex-spouse who is required to maintain coverage can stop paying premiums. The insurer sends the lapse notice to the policy owner, not to you. You may discover the policy lapsed three years ago at the worst possible moment.

Three protections, in descending order of strength:

Irrevocable beneficiary designation. You cannot be removed or changed without your written consent, and the owner cannot surrender the policy, borrow against it or make certain changes without you agreeing. It genuinely restricts the owner, and it is the strongest common protection. See irrevocable beneficiaries.

Owning the policy yourself on your former spouse’s life, with them paying the premiums under the agreement. You control it, so it cannot lapse without your knowledge. This requires their cooperation to arrange and it is the cleanest structure where achievable.

A right to proof. The agreement obliges them to provide annual confirmation the policy is in force, and permits you to contact the insurer directly to verify. Weaker than the other two, and much better than nothing.

An agreement with none of these leaves you dependent on someone you have separated from continuing to pay a premium for years.

If you are the one required to provide it

Two things worth knowing.

An irrevocable designation is a real constraint. You cannot change the beneficiary, and you will need consent for certain policy changes, potentially for many years. Understand that before agreeing to it, and make sure the requirement ends when the underlying obligation does.

Consider whether the requirement should reduce over time. Insurance securing eight remaining years of support does not need to stay at the full amount in year seven. A stepped requirement, or separate smaller policies expiring at different times, can achieve that. See using more than one term policy.

Coverage through work

Group coverage complicates this, because you do not own the contract and the employer can change or end the plan.

If a workplace policy is being used to satisfy an obligation, that is fragile. It ends when the job does, and an irrevocable designation may not be available under the plan. An individually owned policy is a better instrument for this purpose. See work coverage versus your own policy.

While things are still being negotiated

If you are the person who will be required to provide coverage, apply before the agreement is finalised rather than after. Underwriting takes weeks and can produce a rating or a decline, and finding that out after committing to a specific amount is an unhelpful position.

Get advice on the family law

This page describes how life insurance interacts with separation. It is not family law advice, and family law is provincial. What an agreement should say, whether an order can be varied, and what happens if it is breached are all questions for a family lawyer in your province.