How to Rearrange Your Insurance Policies When Divorce Looms
Scientists at the Centers for Disease Control and Prevention find the divorce rate in the U.S. continues at about 53 percent, with 6.8 marriages and 3.6 divorces for every 1,000 citizens. [1]
When you are facing a divorce, rearranging your various insurance policies properly takes careful thought and expert advice.
Divorcing couples face issues that go to the root of what insurance intends to do: It offers financial protection for families against a host of risks and hazards. How you rearrange your policies can assure protection continues even after the spouses have separated. If handled improperly, families can be left without the money they need to pay for living expenses, education for children and other necessities. This guide helps you evaluate four kinds of insurance, and decide how to make appropriate adjustments brought on by the divorce.
· Life Insurance
· Health Insurance
· Homeowner’s (and Renter’s) Insurance
· Auto Insurance
What to Do About Your Life Insurance
Keep Your Policy in Force
You’ll serve yourself well by keeping your life insurance policy in force. If you cancel it, then later decide to buy a new policy, you’ll be older and subject to higher premiums. Further, you may have acquired medical problems that will increase your premiums substantially. Even worse, you may find those problems make you uninsurable, or insurable only at premium rates you could find unaffordable.
Plan for Child Support and Alimony
If you are the person who is (or will be) required to pay alimony and/or child support, you should consider keeping your ex-spouse as a beneficiary. In the case of your death the policy can provide the funds needed to raise children and maintain a reasonable lifestyle. Even though you leave your ex-spouse as a beneficiary, you may want to adjust the percentage of the death benefit paid out for child support and alimony.
EXAMPLE: Assume you have a $250,000 policy and a 12-year-old child. Your divorce settlement states that you need to pay child support until age 18.
With a child support payment of $1,000 per month until age 18, you’ll need to pay $12,000 each year for six years; a total of $72,000. You can work with your insurance professional to adjust the payment to your ex-spouse to $72,000 with a declining amount for each year you remain alive. Clearly, you can use the same logic to adjust for alimony owed.
On the other hand, if you are responsible for child support and/or alimony – and you plan to remarry – be sure to list your new spouse as a beneficiary as well. Failing to do so could result in your ex-spouse getting the entire proceeds of the policy. You don’t want that happening, especially after many years of marriage to a new spouse.
The bottom line: Discuss these issues with an insurance professional as well as your legal advisor to be sure you’ve handled these challenges for the greatest benefit of all concerned.
Did Your Ex-Spouse Change Beneficiaries?
Another scenario sometimes crops up when an ex-spouse cancels or stops making premium payments on the policy you rely upon for alimony and child support. If that’s a concern you can arrange to make payments on the policy yourself, making sure the policy remains in force.
Alternately, you could buy a new policy insuring your ex-spouse’s life that’s sufficient to support you if your ex-spouse allows the original policy to expire. [2] Term life insurance is a good option. You can buy a policy that lasts through the child support and alimony terms outlined in the divorce agreement, then let it lapse if you choose.
Can My Children Be Beneficiaries?
Yes, although you shouldn’t designate them as direct beneficiaries on your insurance carrier’s standard forms. Your three best alternatives include: [3]
· Naming a trusted friend or relative as your beneficiary – someone who will manage the money and use it in the children’s best interest, even over a period of many years.
· Create a living trust and designate a trustee who manages money for your children upon your death.
· Most states have a “Uniform Transfers to Minors Act (UTMA)” provision that directs your life insurance benefit to your children. You’d name your children as beneficiaries and appoint a custodian to manage the money.
Each of these has pros and cons, so consulting an attorney and an insurance professional is the safest way to set up proceeds for your children.
Issues Surrounding Health Insurance
If you and your children had health insurance coverage through your ex-spouse’s employer, you’ll need to find a new health plan. You have three choices.
· If you are employed, your employer may offer health insurance.
· The Affordable Care Act offers health insurance through online market places, by phone and U.S. Mail. You can read a simple, one-page outline of the program [5] and apply. Further, if you qualify for Medicaid you can learn about enrolling at Healthcare.gov. [6]
· COBRA insurance allows a divorcee and dependent children to apply for health insurance and obtain coverage for up to 36 months. COBRA is separate from and has not been changed by the Affordable Care Act. [7]
Homeowner’s and Renter’s Insurance
Before a divorce is finalized it’s important to take a fresh look at your homeowner’s insurance. You’ll want to make certain you are carrying at least the amount of insurance required by the mortgage company. You can also take inventory of your personal effects and possibly reduce the amount of coverage on the contents of your home now that your ex-spouse has removed his or her property…
The spouse who leaves the family home and moves to an apartment or rented condo needs to consider renter’s insurance. As noted elsewhere, [here you can insert a link to the article that discusses renter’s insurance in more detail] renter’s insurance can protect against many hazards and is usually quite economical.
What About Auto Insurance?
If you are the person moving from the family home, you’ll need to remove your vehicle from the policy you and your ex-spouse had together, and then buy a new insurance policy. You’ll lose your multi-car discount, but if you choose to stay with the same insurance carrier your safe driver discount and discounts for longevity with that carrier are likely to continue.
For parents with teen drivers, make certain the policy continues to protect them (and you). Depending upon how custody is arranged, you may need to cover your teenagers for your vehicle and your ex-spouse’s vehicle if they are likely to drive both. Yet again, if your teen drives his or her own vehicle, you’ll probably want to register it at the address of the parent where the teen lives most often and provide insurance on that vehicle.
Questions?
With half of marriages failing, Quoteasy insurance professionals are well versed on the many insurance issues divorcees face. Our team recommends that your account for every insurance policy – those mentioned in this guide as well as long term care, disability and other policies you may have. These insurance issues should be fully addressed in your divorce agreement.
Rather than asking your legal advisor to handle the many details surrounding insurance (at divorce attorney rates!), contact us to get expert advice. Then, take that advice to your attorney who can incorporate your decisions into your legal papers without undue legal expense.
Call us at 305-587-2410 or click. We’re here to help you rebuild your insurance to protect you and your family.
Source
(1) http://www.cdc.gov/nchs/nvss/marriage_divorce_tables.htm (2) http://www.bankrate.com/finance/insurance/uncouple-insurance-policies-divorce.aspx (3) http://www.nolo.com/legal-encyclopedia/using-life-insurance-provide-children-29613.html (4) http://ww1.cobrainsurance.com/health-care-reform-and-cobra/ (5) https://www.healthcare.gov/get-covered-a-1-page-guide-to-the-health-insurance-marketplace/ (6) https://www.healthcare.gov/do-i-qualify-for-medicaid/ (7) http://ww1.cobrainsurance.com/health-care-reform-and-cobra/ see Question #3
