Moving

Britain now has the highest divorce rate in Europe with an estimated two in five marriages doomed to fail. In 1998 alone, a staggering 145,000 marriages came to an end.

It does not make pleasant reading, but with divorce becoming increasingly common it is important for IFAs to be clued up on handling their clients' financial arrangements should they get divorced. While the splitting of assets, such as the house, its contents, the pension, savings and investments, will be one of the biggest concerns for divorcing clients it is important not to neglect their protection portfolio.

One important decision will be what to do with any joint life policies in place such as life assurance or critical illness cover. In the past the only option to your clients would have been to terminate the original policy and rearrange cover for each individual - but life offices are becoming more flexible.

Kenny Brogan, product manager at Standard Life, says policyholders will have a choice over what to do with their policy and the necessary action will vary from one couple to the next. He says: "The decision will ultimately depend on the original purpose of the policy. If it is mortgage-related what you decide to do will depend on what you do with the property."

If the wife is retaining custody of the children, the chances are she will keep the marital home and some insurers will accommodate this by removing the husband's name from the policy.

"Previously if a couple went their separate ways the policy would be terminated and they would both have to start from scratch. Now they can carry on in the name of one or other of the original lives," says Brogan. This is particularly beneficial for women - by removing the male life, the risk reduces and the woman not only keeps her cover but has it at a reduced price.

Alternatively Scottish Provident's Self Assurance product includes a separation option for divorcing couples. Lisa Mowbray, product manager at the company says: "If a couple has a joint life, first death policy and they divorce they can take advantage of separation option which allows them both to take out a new policy for the same level of cover free of medical evidence." However, the policies would be re-priced to accommodate their current age.

While many couples will want to separate everything they jointly own there may be an argument for keeping joint life policies intact - particularly if the policy was purchased for family protection. Whichever parent they live with, the couple will still be responsible for their childrens' care.

Brogan says: "Many policies are taken to maintain the standard of living of their dependants and if that does not change there is no need to change the policy."

But Rod MacDonald, sales and marketing manager at Permanent Insurance says that the decision to keep or terminate the policy can often depend on the health of each individual. In some cases, say if one part of the couple has been ill, maintenance of the joint life policy will be the only sensible solution. "This might be the case if one half of the couple has become a poor risk and would not be able to get cover on normal terms." However, he says, that in certain situations the termination of a joint life policy provides the incentive to shop around for a better deal. He says: "If they are both in good health it may make sense to rebroke their life cover and benefit from the reducing rates we have seen over the last few years."

However, more and more insurers and IFAs are now advocating the sale of single life policies written in the name of the husband and the wife.

Better value

While a joint life first death policy might seem logical for a couple looking to protect a mortgage or any other loan, the purchase of two single life policies offers policyholders better value for money and more flexibility, irrespective of whether or not the couple divorce. This means that if a claim is made, cover for the unaffected partner remains in place. Alternatively, if they do go their separate ways both can walk away with insurance in their own name.

There is a common misconception that joint life policies offer a big saving and in reality there is often little difference in the price of one joint life and two single life policies. Scottish Provident, can offer a non-smoking couple both approaching their 35th birthday a £100,000 joint life death or earlier critical illness benefit for £69.12. But two single life policies for the same sum assured would cost the same couple £73.79 - around £4 extra a month but with two potential payouts.

Divorce is a life-changing event, and like marriage, the birth of a new child or a salary increase, when your clients' commitments or lifestyles change, their protection portfolio needs to be reviewed. This becomes particularly important for women with custody of the children.

Family protection

Family protection is usually written in the breadwinner's name, and so on divorce the wife could be left without any cover. Likewise, if any cover was provided through her husband's employer she will lose out on that too.

In the vast majority of cases, the wife takes custody of the children and while maintenance payments from her ex-husband will cover the children's needs, many women who had previously stayed at home or worked part time will be forced to return to work or go full-time to support themselves. This will create a whole raft of new protection requirements.

Diane Saunders, a Leeds-based IFA ,says that it is essential to protect any maintenance payments made for the children. "If a husband is paying £500 a month for his children then their mother would be left £6,000 a year short if her ex-husband died and so she must insure his life," she says.

This could be achieved through a basic term contract taken out by her ex-husband and written in trust for the children.

Alternatively, the woman could arrange a 'life of another' contract. Paid and arranged by the female (or the child carer), this type of policy would ensure that she received her chosen sum assured on the death of her children's father.

Depending on the circumstances the children may become financially dependent on their mother so life assurance in her name may be necessary adds Saunders. "As a single parent you must stop and consider whether your death would cause financial problems for your children. Also you might want to consider leaving an inheritance to them with a life insurance contract."

But she emphasises that it is important to ensure that the policies are written in trust. "This will ensure that your ex partner does not get the funds," she says.

Income protection

Yet with the risk of long-term sickness or disability a much greater risk than premature death, Saunders says that life assurance is not sufficient protection for essential maintenance payments. "If the husband, (or the payer of maintenance) cannot work for whatever reason, the first thing to go will be the maintenance payments so it also worth arranging income protection on his life to protect this outgoing," she says.

Without a husband's salary to fall back on divorced women have an even greater need to protect their own income, as sickness and disability can have a much greater impact on the single parent family. If the divorce was not amicable for example, or if the children's father does not live locally practical support in the form of childcare may not be accessible.

Ronnie Martin, protection leader at Legal & General, says: "If the woman is working she will need to think about income protection, life cover and critical illness. But income protection must come close to the top of the list because the minute her income stops both herself and her children will be affected."

If cost is an issue the policy terms could be linked to her children's reliance on her income, he adds.

Mowbray agrees that income protection must be a priority. "If a divorced woman is unable to work and seriously ill who will look after the children? She may find that she has to employ someone for childcare." She adds: "In a marriage there is also usually more money to spare and both parents can share the responsibility."

But divorce can be messy - particularly where third parties, children and new families are involved and so re-arranging the finances of a couple that may not be co-operating is not easy. And so, Saunders says, action must be prompt. "These things all need to be arranged as quick as possible. As time passes it may become more difficult to get an ex-spouse to agree to take out a policy."

Divorce is an emotional issue. The struggles and the fights a divorce creates have not changed, but the way insurers handle this issue has. It is in your client's interests to review their protection portfolio and take advantage of the flexibility of the products you have already sold them - while taking a look at their new financial responsibilities.