Earlier today, someone found my blog by searching for ‘divorce critical illness payout’.

This is an awkward topic, as an adviser, it’s tricky to raise this as a subject with a married couple, but it is something that affects my advice. And later, in the event of divorce, it is even more awkward.

With most insurances people decide which one wants to keep the policy (if either do) and the other signs away their interest in the policy – with life insurance this is quite common and endowments as well, usually there is an exchange of cash as well when it’s endowments. Pensions as well, in divorce can be split according to the agreement made by both parties.

With most joint critical illness policies it gets complicated. A joint policy will usually pay out once only – on the 1st event of either Mr or Mrs Smith becoming critically ill and then the policy stops. They usually pay out on death too…and then the policy stops.

So, we have considerations:

Firstly we have ‘old definitions’ – old policies have illnesses that used to be critical, but as medical knowledge has progressed those illness have become run of the mill and not critical, or if it’s not the illness itself, the definition is ‘claimable’ at what is now a non critical stage. Essentially, old policies are better than new.

Secondly we have the money issue – someone has to pay the premium, and they will expect the pay out. This is not a problem in the event of death of the other party, that will still be a payout and I don’t suppose anyone will contest it. And it’s not a problem if the payer becomes ill, they’ll just take the payout. But what if the other person becomes critically ill – proving they are ill will require their co-operation.

There is a partial solution – some companies will split a policy in the event of a divorce – although some require medical evidence to be provided and so may decline one party or the other and some also required a new mortgage to be taken out. If it’s happening to you, this is worth investigating.

If this isn’t an option, then I suggest you make your agreement at the time of the divorce – negotiating cash payouts on a partners critical illness is never going to look ‘seemly’.

For me, I usually recommend 2 single life policies, I explain this is because there is potential for 2 payouts. This is another ‘background’ reason though.