Divorce can be a stressful and traumatic time in anyone’s life. Dealing with insurance decisions is way down the list of fun things to do, but understanding insurance requirements, responsibilities and some creative planning can prove to be invaluable both pre-and post-divorce.
Below are some important insurance considerations for divorcing couples, from our friend Mike Smith at CPS Horizon Financial.
If minor children are in the picture, expect the divorce decree to require a certain amount of life insurance be maintained by both ex-spouses. If one ex-spouse is paying child support and/or maintenance, life insurance can protect those payments should an untimely death occur. Term life insurance equal to the time the youngest child turns 18 is quite common.
If children are grown, the need for life insurance may diminish, but that does not suggest dropping existing coverage or not considering purchasing a policy. Life insurance can be a great equalizer. Suppose one spouse remarries. They will want to make sure they provide for the new spouse but what about the adult kids? Having life insurance can assure both the new spouse and adult children from the first marriage that they will be provided for at death of the spouse/parent.
Life insurance can also protect the income generated by an ex-spouse’s interest in a business or delayed settlement payments. The amount of coverage varies and too few individuals take the time to determine what is proper. An insurance or financial planner can help determine the correct amount and help secure enough coverage to meet obligations or adhere to the divorce decree.
Disability insurance protects the insured’s income. High quality coverage will replace 66% of the insured’s income. But most divorce decrees are structured around full income availability and don’t take into consideration a spouse’s inability to work due to illness or injury. A disabled ex-spouse will likely fall behind in payments or appeal to the court for suspension or relief of payments.
Divorce disability insurance protects the terms of the divorce decree. It provides assurance that child support and/or maintenance payments continue on time and in agreement with the divorce decree. This coverage can be purchased before or after a divorce and is designed best for those in white collar jobs or when payments total $4,000 or more per month. There is also a specialized product called Divorce Disability Insurance which is best suited for high-net-worth couples going through divorce.
Long Term Care Insurance
Divorce amongst those in their 50s and 60s has been on the rise. Initially each spouse was the other’s long term care plan. Who’s going to care for a divorced spouse?
Long term care insurance can provide money to help pay for or offset the cost of home health care, assisted living, or nursing home care. HUGE tip here. If you know you’re getting divorced, consider purchasing long term care insurance while still married and then split the policy upon divorce. Companies offer a spousal discount (up to 50%) when both spouses purchase coverage. Upon the divorce, although you split the policy into individual coverage, both parties keep the discount. Each person pays their own share of the premium going forward and keeps quality coverage.
Auto and Homeowners
Remember to tell your auto and homeowners agent you are divorcing so coverages can be adjusted for ownership and address changes.
A divorce decree may outline who will carry and pay for health insurance. If both spouses are working, compare plans and negotiate whose coverage is best suited for benefits and costs.