Anyone going through a divorce is faced with a number of complex decisions. The process of dividing major assets, determining new living arrangements, negotiating child custody agreements, along with other necessities, can be very emotional. The need to make changes to existing insurance coverage is an important issue to consider as well.
Given the important role insurance plays in a well-rounded financial plan, it is worth taking the time to review your policies to ensure ongoing and adequate insurance protection following a divorce. Complex issues in divorce require independent legal and accounting advice.
Life insurance plans can offer the option to add spousal coverage to an individually owned life insurance policy, or, in some cases, the policy may be jointly owned. In these circumstances, if the ex-spouse wants to obtain separate coverage, he or she will most likely have to cancel the existing policy and reapply for individual coverage. If there's been a change in health, the new coverage may cost substantially more, or may be declined.
For Life insurance issued through the group OMA plan, if the spouse is also an eligible member of the OMA, he or she may request a "life transfer" to obtain separate coverage. This enables the existing policy owner to avoid having to cancel and reapply for new coverage.
It is important to re-evaluate the ex-spouse's need for health and dental coverage, and determine if he or she will be able to continue to be covered under the ex-spouse's family plan, or if a new plan is required. Another consideration is extending the coverage for any children.
Under the OMA Extended Health and Dental insurance plan, spousal coverage is automatically terminated upon divorce. However, if both individuals are eligible members of the OMA, the person who formerly was covered as a spouse may make a request in writing to obtain new coverage as an individual, and would not have to provide proof of good health.
Coverage for any children remains in place, unless the policy-owner requests in writing to remove the dependent(s).
Managing the financial impact of an illness is difficult enough in two-income households, but becomes even more challenging for singles and single-parent families. Critical Illness insurance and/or Disability Income insurance can offer an effective solution.
Both Critical Illness and Disability Income insurance pay a tax-free benefit — Critical Illness in a lump sum, and Disability income in regular, monthly payments that can be used by the insured in any manner deemed necessary (including expenses such as mortgage payments, the costs of daily living, education fees, etc.). This not only helps the individual better maintain his or her standard of living, but can also preserve retirement savings.
If a member has Critical Illness through the OMA Priority Insurance Plan (OPIP), a divorce would result in the ex-spouse having his or her coverage automatically terminated. The ex-spouse may want to consider purchasing his or her own Critical Illness or Disability Income insurance plan to cover any unforeseen occurrences that would cause financial hardship.
Following a divorce, it is likely that the owner of a life insurance policy may want to remove an ex-spouse as beneficiary. In most cases, a spousal beneficiary designation is considered revocable, except for insurance issued in the province of Quebec. If the beneficiary designation is revocable, the policy-owner is free to name a new beneficiary at any time. But if the beneficiary designation is irrevocable, the beneficiary's signature is required to approve a change in beneficiary.
If children are designated as beneficiaries, it is important to name a trustee for any minors or disabled children. The trustee should be someone who is at an appropriate age and stage in life, trustworthy, has a solid financial background, and is in good health.
This would apply to all OMA Insurance policies where you can name a beneficiary.