Not every marriage ends in “happily ever after.” For many Canadians, separation brings not just emotional stress but complex financial consequences. Yet many individuals overlook the role of life insurance during divorce.

As divorce becomes more common in Canada, with a crude divorce rate of 2.1 per 1,000 people and ranking 26th globally, understanding how your life insurance policy fits into a divorce settlement is essential. This article explains how divorce may impact your current life insurance coverage, why you might need a new policy post-divorce, and how to update your beneficiary.

Why does life insurance matter during a divorce?

Life insurance holds significant importance during a divorce because it ensures that financial responsibilities toward a former spouse or children remain protected, even after the policyholder’s death. Here’s why life insurance matters in a Canadian divorce settlement:

• Secures child support and spousal support obligations: Courts may require a life insurance policy to guarantee continued payments if the paying spouse passes away
• Protects the financial future of dependents: Life insurance ensures that children and ex-spouses can maintain financial stability and meet essential needs like housing, education, and healthcare
• Fulfills court-ordered divorce requirements: Judges in Canada often mandate life insurance as part of separation agreements or divorce settlements, particularly when minor children are involved
• Prevents legal and financial disputes: Including life insurance in a divorce agreement helps reduce future conflicts by clearly defining who receives the payout and under what conditions
• Covers shared debts or mortgage obligations: Life insurance can also help pay off joint loans or mortgages, preventing the surviving ex-spouse or children from inheriting debt
• Provides peace of mind: Both parties gain reassurance that the financial needs of dependents will be met, regardless of unforeseen events

What happens to your life insurance policy after a divorce in Canada?

When a couple separates or divorces in Canada, their life insurance policies do not change automatically. Many couples initially purchase life insurance together to protect shared financial responsibilities, such as mortgages, childcare, and family income. 

Typically, one spouse names the other as the primary beneficiary. However, separation does not revoke this designation unless the primary policyholder makes manual changes to the policy. Here’s what you need to know about life insurance after divorce:

• You must update your beneficiary designation manually: If you no longer want your ex-spouse to receive the death benefit, you must contact your insurer to change the beneficiary. However, if the ex-spouse is an irrevocable beneficiary, you will require their consent to make changes
• Court orders may require you to keep your ex-spouse as a beneficiary: In some divorce settlements or separation agreements, a judge may order that one spouse maintain a policy with the other spouse or children listed as beneficiaries, especially when child support or spousal support is involved
• Joint life insurance policies can be complex: If you purchased joint first-to-die or joint last-to-die life insurance, these policies can’t always be divided. You may need to cancel and replace the policy with individual coverage or reach a mutual agreement about the payout
• Group life insurance coverage through work may also require changes: If you listed your spouse as a beneficiary under an employer-provided life insurance plan, you need to update this separately with the help of your HR department
• Failing to update your policy may result in unintended payouts: If you pass away without updating your life insurance, your ex-spouse may still legally receive the benefit, even if your separation occurred years ago

How is a life insurance policy equalized between spouses in a divorce?

During a divorce or legal separation in Canada, one of the most important financial considerations is how to divide marital assets fairly. While homes, joint bank accounts, investments, and emergency funds are typically subject to equalization, life insurance policies require special treatment based on their type and structure.

Term life insurance 

Term life insurance policies do not hold any financial value unless a claim is made. Therefore, they are generally not considered divisible marital assets during property equalization. Each spouse can continue their own policy without changes, provided they are individual policyholders.

Permanent life insurance

Whole life or universal life insurance policies, which build cash surrender value, can be treated as financial assets. The cash value accumulated in these policies may be included in the equalization of family property under Canadian divorce law.

Joint life insurance policies 

Joint life insurance policies require equalization between the spouses after a divorce. If you and your spouse share a joint first-to-die or joint last-to-die life insurance policy, you must decide whether to:

• Assign the entire policy to one spouse
• Convert the joint policy into two individual policies (subject to insurer approval)
• Cancel the policy and purchase separate coverage individually

What is the process of splitting a joint life insurance policy?

Insurance providers typically allow the division of joint life insurance in the case of divorce or separation. However, this process often involves:

• Meeting minimum coverage requirements for new individual policies
• Adjusted premiums based on each individual’s current age and health status
• Legal documentation (such as a policy assignment form) to transfer ownership or divide the coverage
• In some cases, support from a family lawyer or divorce lawyer may be necessary to complete these documents correctly

Is life insurance a marital asset?

Yes, life insurance can be considered a marital asset in Canada, depending on the policy type and ownership. Term life insurance typically has no cash value, so it is not treated as a divisible asset in divorce proceedings. 

However, permanent life insurance, such as whole life or universal life, accumulates cash value over time and may be treated as a financial asset subject to equalization under provincial family law.

If both spouses contributed to premiums or if the policy was acquired during the marriage, its value may be split. Splitting a whole life policy with its associated cash surrender value is generally considered a taxable event, except when a policy is being split due to a marriage/common-law relationship breakdown.

It’s important to disclose life insurance during separation and consult a family lawyer or financial advisor (such as our experts at PolicyAdvisor) to determine how it factors into your overall divorce settlement.

What is a court-mandated life insurance order?

A court-mandated life insurance order is a legal directive issued during divorce or separation proceedings in Canada. It requiresat least one spouse to maintain a life insurance policy naming the other spouse or children as beneficiaries. The purpose of this order is to ensure that financial obligations continue to be met in the event of the payor’s death.

Courts typically mandate this coverage when one spouse relies on ongoing support for housing, childcare, or education expenses. The order may specify the minimum coverage amount, policy duration, and beneficiary designation. Non-compliance with a life insurance order can result in legal consequences, so it’s essential to follow it closely and provide proof of coverage.

How is a court-mandated life insurance monitored after the divorce?

A court-mandated life insurance order is monitored through legal documentation and regular proof of compliance. The spouse required to maintain the policy must typically provide proof of coverage, such as a copy of the life insurance policy or a confirmation letter from the insurer, to the other party or their legal representative.

• In many cases, the court order will outline specific monitoring requirements, such as:
• Naming the support recipient or child as the irrevocable beneficiary
• Submitting annual policy statements or renewal confirmations
• Notifying the other party before making any changes to the policy

If the obligated party fails to comply, the other party may take the matter back to court for enforcement or a motion for contempt, especially if the lack of coverage puts dependents at financial risk.

How to handle existing life insurance in a divorce?

If you’ve set your ex-partner to receive the death benefit from your insurance policy, a divorce won’t automatically change this. To change your beneficiary after separation, you have to go through your insurance company or speak with your advisor of record. However, there may be a few things for you to consider as you go about making the change.

Revocable versus irrevocable beneficiaries

• A revocable policy means you can change the beneficiary without first consulting them. That is if, after the divorce, you want to reassign the death benefit away from your former spouse and to another person, a revocable policy allows the reassignment without informing your ex-partner.
• In contrast, an irrevocable policy requires your ex-partner’s (the irrevocable beneficiary) consent to approve the change.

With that said, if you and your former spouse have one or multiple children together and they remain as the children’s primary caregiver, it may be best to keep your former partner as the beneficiary to ensure your children’s financial protection and stability, in case of your death.

How much life insurance do you need after a divorce?

As a newly single person (or even as a newly single parent), you should reassess how your life insurance needs have changed after a divorce. Your new life insurance needs will depend on your portion of the liabilities and how much support you have access to or would be receiving.

Also take into account whether or not you have the responsibility to take care of the children you may have had with your former partner, provide for their education, and help maintain their lifestyle post-divorce.

It’s important to secure any new post-divorce life insurance coverage as soon as possible. Not only may the coverage be a pressing financial obligation of your divorce agreement, if something happens to you and the expected coverage is not in place, but your death could also produce a complicated financial situation that may take months or years for your loved ones to settle and erode any inheritance or wealth you had intended to leave behind.

A life insurance calculator can easily help you reassess your insurance needs and update your post-separation financial plan. If you find you don’t have adequate coverage, you may need to speak with a life insurance broker to help you get new life insurance coverage as soon as possible.

What type of insurance should you purchase after a divorce or separation?

The type of insurance to purchase will depend on your financial circumstances after a separation. Term life insurance is often ideal after a divorce or separation if you want to maximize your coverage while working within a budget. A term life policy is less expensive than many other life insurance options. Term life insurance only provides a death benefit if you die within a specific time-frame, such as within 10, 20, or 30 years and therefore the premiums are more affordable.

You may keep your new term life policy active for as many years as you’re responsible for spousal and/or child support payments. Once your children are a certain age, they may achieve financial independence and a policy may no longer be required.

In contrast, a permanent life insurance policy would last for the entirety of your life. This type of policy is more expensive than a term life policy, but it may provide your ex-spouse or children with a death benefit, regardless of when you pass away.

Should you write life insurance into your separation agreement?

Life insurance is critical to consider for your separation agreement during the divorce process. In most cases, if child support or alimony is obligated during divorce negotiations, the court may also require the spouse paying support to have a life insurance policy in place. As the spouse that may receive alimony payments, your ex-partner’s life insurance policy ensures that you continue to receive alimony payments, or an equivalent sum of money, even after their death.

You and your partner must work together or with a divorce lawyer to decide on many aspects of your post-separation life insurance coverage, such as:

• the amount of coverage to hold
• the length of coverage to put in place
• appointing the owner of the policy
• designating who will make premium payments
• the names of beneficiaries
• the type of beneficiary designations

If your former partner purchases life insurance with you as the beneficiary after the divorce, you may even want to specify that it’s an irrevocable policy (as mentioned above). With an irrevocable policy, they can’t unilaterally change the beneficiary without your knowledge and consent.

Without a policy, you may alternatively write into the divorce agreement that you would have priority to your ex-partner’s estate to compensate for any spousal or child support payments. However, if there’s little to nothing left at their death, you may be out of luck. In contrast, life insurance could guarantee a payout to cover or help with remaining childcare or lifestyle expenses.

Even if you’re the one making payments, asking your former spouse to have a policy ready can act as a financial safety net, if you end up as the sole parent to your children.

Lastly, it is important to reconcile any name changes that have occurred as a result of your divorce. If an individual took on their partner’s name or made other changes to their name when they were married but choose to go by another name post-divorce, ensure that all beneficiary documentation is updated with the life insurance company to reflect proper first and last names.

Should you designate your children as the life insurance beneficiary?

Instead of designating your ex-partner, you may want to consider setting your children as the life insurance beneficiary. However, this could complicate things. Many provinces don’t allow children under 18 to control the money from a death benefit. As a result, you may need to appoint a trustee, or beneficiary in trust, for your life insurance or to set up a trust under your children’s name.

Setting up a trust involves finding a reliable person to act as a trustee and drafting legal documents with a lawyer for the beneficiary designation. Without a trust prepared, a court may distribute the funds to a public trustee to manage on behalf of the minor child or children.

Because of these complications, it may be easier to designate your former spouse as the beneficiary. The exception is if you believe that your ex-partner won’t act in the best interest of your children once they receive the death benefit.

In this situation, a trust would ensure that your death benefit is used in your children’s best interest. This is because the trustee managing the funds is legally required to make sound fiduciary decisions for your children.

Tips for navigating life insurance in a divorce

Whether you’re the policyholder, the insured, or a named beneficiary, it’s important to manage life insurance with care to protect your future obligations and dependents. Here are key tips to help you navigate life insurance during a divorce in Canada:

• Review all existing life insurance policies: Start by identifying any active term or permanent life insurance policies, whether held individually or jointly. Understand who owns each policy, who the beneficiaries are, and whether there is any accumulated cash value
• Update your beneficiary designations: Many married individuals name their spouse as the primary beneficiary. After separation, review and update your designations, unless a court order requires you to keep your former spouse as the beneficiary for child or spousal support
• Follow your separation or divorce agreement: Divorce settlements often include clauses that require one or both parties to maintain life insurance coverage as a financial safety net, especially if children or support obligations are involved
• Secure independent coverage post-divorce: If you relied on joint coverage, consider purchasing a new individual policy to ensure continued protection for your children or dependents
• Consult legal and financial professionals: A family lawyer or an expert insurance advisor can help you comply with legal requirements, understand your rights, and make informed policy decisions tailored to your new financial reality

How to buy life insurance after a divorce?

Buying life insurance after a divorce involves more than just selecting a policy. It often includes meeting legal obligations and planning for new financial priorities.

You may be required by a separation agreement or court order to purchase life insurance to secure spousal or child support. It’s also important to carefully choose your beneficiary, especially if you’re considering naming children instead of your former spouse.

To make the process easier, speak with a licensed insurance advisor who understands the complexities of post-divorce planning. At PolicyAdvisor, our experts help you compare options from 30+ top-rated Canadian life insurance companies, ensuring your policy meets both legal requirements and personal goals. We also provide dedicated after-sales support so your coverage continues to reflect your changing life.

Frequently asked questions

Can my ex-spouse cancel my life insurance policy without my consent?

No, your ex-spouse cannot cancel a life insurance policy if they are not the policy owner. Only the policyholder has the legal authority to cancel, update, or modify the policy. However, if the policy is part of a divorce order and names your ex-spouse as an irrevocable beneficiary, you cannot make changes without their written consent. To protect your interests, always review ownership details and beneficiary status after separation.

Can I name my minor children as life insurance beneficiaries after divorce?

Yes, you can name your minor children as beneficiaries, but insurers typically will not pay a death benefit directly to a minor. Instead, you should appoint a trustee or legal guardian to manage the funds until your child reaches the age of majority. You can also set up a testamentary trust in your will. This step ensures the insurance proceeds are used according to your wishes for your child’s benefit.

Will my life insurance premiums increase after divorce?

Your premiums won’t automatically increase due to divorce, but they may go up if you apply for a new policy at an older age or with different health conditions. If you switch from joint to individual coverage or increase your coverage amount post-divorce, your rates may change accordingly. 

What happens to the cash value of a whole life policy in a divorce?

The cash surrender value of a whole life insurance policy is typically considered a marital asset and may be subject to division during property equalization. Courts may require disclosure of the policy’s value and decide how to split it, either by assigning it to one spouse or equalizing it through other assets. It’s important to include these policies in your financial disclosure during the divorce process.