We all think that it will never happen to us, but relationships sometimes fail.
Whatever the reason for the end, a break-up or a divorce is never easy. As two people begin to dis-entangle their emotional lives after years together, the separation is further complicated by the need to dis-entangle friends, extended families, possessions and finances. The State Bar of Georgia has a useful pamphlet to help you start to think through some of these issues, but we’d like to take a moment to discuss insurance and divorce.
Considering Insurance in a Divorce
“When discussing the financial aspects of a divorce or a break-up, insurance considerations should be a key component in ongoing and final decisions,” said Jeanne M. Salvatore from the non-profit Insurance Information Institute (I.I.I.) in a recent statement. “Dividing up property, changing homes, and altering life insurance policies must be discussed to make sure that both parties, as well as children or other dependents, are financially protected after the separation is completed.”
The I.I.I. says the common insurance issues that a divorcing couple needs to consider include their car insurance, homeowners or renters insurance and any disability or life insurance they may have.
Car Insurance: Take care to notify your insurer of any changes to the ownership or designated drivers of a vehicle (including any dependents who drive) and be sure to separate policies if your partner moves to another residence, says the I.I.I.. If your partner is still paying for your insurance after a separation, the I.I.I. also advises to make sure the insurer has your contact information so you can be notified if payments are no longer made. These steps help make clear who is responsible for paying premiums and deductibles and for bearing any future higher premiums if anything should happen.
Homeowners or Renters Insurance: A separation or divorce typically means that possessions will be divided between the individuals and, often, at least one of the partners will change residences. The I.I.I. says that it is important to keep your insurer informed of changes in your residence and possessions so that you make sure you are carrying sufficient coverage.
Disability Insurance: The I.I.I. cautions that if a former spouse becomes disabled and unable to work, alimony and child support payments could be threatened. In fact, among people of ages 25 to 55, an individual is twice as likely to become disabled than deceased, so the I.I.I. advises that you should speak with your insurer about whether a disability insurance policy would be appropriate for you or your former partner.
Life Insurance: While you may consider making changes to your life insurance policies after a separation or divorce, make sure you talk to a financial professional before making any decisions. The I.I.I. cautions that you may want to leave your partner as your beneficiary—especially if you have children. As with disability insurance, life insurance can ensure that resources will be available to cover emergency costs and help raise the children if the primary caregiver, alimony or child support payments are lost due to a death. The I.I.I. adds that in these situations, term coverage may be more appropriate than whole life coverage because it’s often cheaper and can be structured to cover the children just until age 21, for example. A financial professional can help you sort out your existing policy and make decisions for new coverage.
In an overwhelmingly emotional situation like a separation or divorce, it’s important to step back to consider carefully how you will manage your transitions from a couple to two individuals. Changes in insurance need to be a part of the formal discussion, and these I.I.I. recommendations can help you begin to think about how to make sure that you, your partner and any children are properly protected.