TomorrowMakers

Depending on your insurer, you may be able to walk out of your marriage with your health insurance coverage intact.

Going through a divorce? Here's what happens to your insurance policies

All relationships change over time; some grow stronger while others start to fall apart. Marriages are no exception. Though the institution of marriage is considered a commitment for life; more Indian couples are opting for divorce today than ever before. Statistics published by the Organisation for Economic Cooperation and Development (OECD) show that the rate of divorce in India has increased 13-fold since 2010. 

Any separation – whether mutual or not – has financial consequences for estranged couples, which only adds to the emotional distress. So, it is in the best interests of a couple to have a mutually agreed financial settlement plan in place before they formally break up, especially when it comes to insurance. There are two reasons for this, which we shall outline below.

Firstly, insurance plans (life, health, home, auto) are meant to provide financial continuity in the event of a crisis. To let them lapse while the divorce process is in court exposes both parties to risk. Secondly, if no agreement is reached by mutual consent as to the division of assets, the court’s ruling will be binding on both. Filing an appeal later might not bring either spouse much satisfaction.

Family floater health insurance plans are meant to cover a married couple and their dependent children and/or in-laws from medical expenses. Most family floater plans have annual premiums. In a few cases, it is even possible for couples to split premium payments between themselves in order to claim tax benefits. Naturally, it also helps them to cut down the amount payable individually by half.

Related: What is joint life insurance and when to go for it

Let us now see how a family floater health insurance plan is impacted in the event of a divorce.

Conversion from floater to individual

In case of divorce, the insurer must be notified as soon as possible. It may be willing to convert a floater into an individual plan. However, the 'policy wordings' or terms and conditions must clearly state whether such conversion is possible. The couple may be required to undergo fresh medical checks for the underwriter to perform a risk assessment.

Change of terms

Depending on the discretion of the underwriter, a conversion may be allowed. Chances are that the couple may have to pay higher premiums for the same amount of coverage. In addition, the waiting period for pre-existing diseases may start all over again and certain medical conditions might be excluded from the scope of coverage.

Potential loss of benefits

If the divorce comes through mid-term, the policy may have to be surrendered as changes to its status are allowed only at renewal. The couple will no longer be eligible for waiver of the 30% co-payment clause in case of critical illness. Obviously, any accrued no-claim bonus credit will be lost and so will any discounts on premium, once the grace period for renewal expires.

The terms of the insurance contract change once the spouse’s (and other beneficiaries’) names are cancelled. When it takes effect, any extra premium paid is reimbursed on a pro-rata basis.

Related: I was facing a divorce and here's how I prepared for it 

Insurance portability

If your insurance provider allows it, you can convert a family floater plan into an individual cover, after divorce. This will help you to port to a different provider when the policy is due for renewal. If you want to understand more about group health insurance vs individual health insurance, read this.  

Impact on family

If you have adult children, the utility of a family floater health plan may be limited. This is because dependents aged 25 or older are not covered by such plans. In this situation, it may make more sense to let the policy lapse. That said, elderly parents of either spouse may be deprived of health coverage unless they have their own health insurance.

Changing nominees

Once the divorce deed is finalised, the policy holder can request a change in nominees. Only a family member with insurable interest can replace the spouse as nominee. ‘Insurable interest’ refers to someone who stands to suffer a financial loss in the event of the proposer’s death. It is a good practice to nominate one’s own children as nominees to enable a smooth settlement at maturity.

Related: Divorce: Who has rights to the property? 

Minors’ rights

If the child is a minor, an ‘appointee’ or caretaker is nominated who can be trusted to transfer the proceeds to the rightful beneficiaries when the time arrives. It is not uncommon for the ex-husband or ex-wife to be made the nominee. As per procedure, a letter request change of nominee must be sent to the insurance company to initiate the process.

Related: Tax implications you must be aware of when getting a divorce 

Appointing an assignee

An assignee bears the rights and risks of the insurance plan on behalf of the other partner. If the rights were voluntarily transferred during their marriage, the assignee retains control over the policy even after separation. This includes the authority to approve nominees or make reassignments. Therefore, it is critical to reclaim assignment rights before the divorce process is completed.

Last words

Health insurance helps policy holders cope with expenses incurred due to a medical emergency. A divorce can disrupt the status quo for a family as a whole. The onus for ensuring a smooth transition, especially with regard to appointing new nominees and switching reassignments, falls equally on the husband-wife duo. This can keep financial worries at bay when a couple gets divorced. Going through a divorce? Here is everything you need to know