Recent research from Legal & General (L&G) highlights a concerning trend: Many individuals undergoing divorce neglect to update crucial financial information, potentially leading to serious financial repercussions for their families. The study reveals significant oversights in essential areas such as life insurance, wills, and joint financial products.
Neglecting Life Insurance and Wills
A startling 10% of divorcees, representing over 815,000 people, have failed to remove their former spouse as the beneficiary of their life insurance policy. This lapse means that, in the event of a claim, the ex-spouse would receive the payout. This oversight underlines the importance of reviewing and updating beneficiary designations immediately after a divorce is finalized.
Compounding the issue, only 7% of individuals discussed life insurance beneficiaries as part of their separation agreement. Furthermore, only 27% of those surveyed canceled joint life insurance policies they held during their marriage.
Equally concerning, 11% of divorcees have either delayed or forgotten to remove their ex-partner from their will. This failure could result in the ex-partner inheriting the estate, a consequence most divorcees likely do not intend.
Limited Financial Planning During Divorce
The L&G study also reveals a lack of proactive financial planning during divorce proceedings. Only 7% of individuals seek advice from a financial advisor, leaving many vulnerable to financial pitfalls that could have lasting implications. This lack of professional guidance is further reflected in the low rates of protection insurance taken out post-separation, with only 4% securing a critical illness policy and a mere 3% obtaining income protection.
Expert Commentary and Recommendations
James Shattock, Managing Director of UK Protection at L&G, emphasized the financial complexities of divorce, stating, “Divorce is always difficult but, without advice, it can be a costly too. It’s really important for anyone going through a separation to be fully aware of the financial implications of divorce and to ensure they review other important elements, like their wills and financial products like life insurance, to ensure beneficiary information is updated.”
Shattock further highlighted the crucial role financial advisors can play, adding, “Advisers can play a key role in supporting clients during a separation, helping them to put a plan in place for the costs associated with a divorce, any shared debts and, potentially, making sure a Clean Break Order is in place. We’ve also produced a financial health check tool to help people consider the wider financial implications of a separation.”
The findings underscore the need for individuals undergoing divorce to prioritize the revision of financial documents and seek professional financial advice to safeguard their financial futures.
