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What Is Divorce Insurance Coverage?

By David Bakke

One of the latest products to be rolled out by the insurance industry is divorce insurance. Yes, you heard me correctly, divorce insurance. The question is, what exactly is it and should you consider it?

Is Divorce In Your Future?

First of all, let’s be clear on one thing. Divorce insurance is not something you should consider if you are currently in a divorce proceeding or if you think that divorce may be on the horizon for you. It’s not that simple. If it were, I think that people would be signing up left and right for it.

No, actually, it is something that you would need to consider as long-term leverage against the possibility of divorce. The way the policy is set up, it is just not a viable option for someone who sees divorce in the near future due to the required maturation period discussed below.

How It Works

It is actually quite an interesting concept. This is how it works. The plan is sold in units. For each unit you purchase, you will pay $16 per month and in turn you will receive $1,250 in coverage. So, if you buy ten units, you’ll be paying $160 per month and will receive $12,500 in coverage. The insurance company will also add an additional $250 in coverage each year for each unit you purchase.

Then, if you get divorced and your policy has matured, you will receive a lump sum payment equal to the amount of coverage you purchased. This money, of course, can be used to help defray the costs of your divorce.

The Maturation Period

The key here is when your policy matures. Most policies will not mature until 48 months after the purchase date. In some instances, you can purchase “riders” to reduce the maturation period to 36 months and to also get back your premiums should you divorce before your policy matures.

These rules are put in place to prevent against people purchasing policies who know that they will soon be getting a divorce.

The Downsides

There are a couple of downsides to be aware of before considering divorce insurance. The biggest downside is that if you never get divorced, you will lose out on all the money that you had put towards your divorce insurance. As an alternative, it may be smarter to simply set aside the money that you would have otherwise been paying towards your divorce insurance premiums in some sort of interest bearing account, and earmark that money for the costs of divorce should you need it. The negative to this strategy is that if you do end up getting in divorce, you need to keep in mind that your soon-to-be ex-spouse may be eligible for a portion of that money in the event of a divorce.

Another big downside is that most of these policies are not covered by any state funds that would honor them if the provider goes bankrupt.

Is Divorce Insurance Something For You?

In the end, deciding on something like this is purely a personal decision. You have to weigh all of the pros and cons of your marriage and, in a sense, estimate the risk you run of getting divorced at some point down the road.

But I can tell you this: divorce can be very costly. In addition to any recurring money you may have to pay out after a divorce, the actual costs of the divorce process itself can be pretty staggering. Even an uncontested divorce with no children and little to fight over can cost as much as $6,000, depending on the quality of the attorney you retain.

In my opinion, if you are not attracted to the concept of paying for divorce insurance, you still need to be financially prepared. At the first moment you sense that divorce may be on the horizon, I would make sure that you have at least a good bit of money set aside that you know you can use for the costs of a divorce. As I said, the payouts you will potentially be making after a divorce will be difficult enough. You need to be prepared so that the process itself of getting a divorce does not put you in a deep, financial hole. And if divorce unfortunately does come along in your life, make sure to check out this free divorce advice.

Have any of you purchased or considered divorce insurance? Any thoughts on this interesting topic? As always, your feedback is greatly appreciated.

(photo credit: dblue)

David Bakke
David started his own personal finance blog, YourFinances101, in June of 2009 and published his first book on ways to save more and spend less called "Don't Be A Mule..." Since then he has been a regular contributor for Money Crashers. He lives just outside Atlanta, GA and most all of his free time is taken up by his amazing three year old son, Nicholas.

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Comments

  • http://www.retireby40.org Joe

    OMG! I never ever heard of divorce insurance. That’s nuts, how cynical can you get?
    How are they going to check if it’s a real divorce? What if I get a paper divorce when the policy matured?
    I’m asking this because I know a couple who got divorce for financial protection, then remarried later.

    • David/moneycrashers

      Joe

      The whole OMG thing was running through my mind the whole time I was writing this article.

      Yes, its pretty unbelievable, but apparently people are siging up for it.

      The research that I found did not go into too much detail, but they did say that they have a pretty extensive investigatory process to make sure that the divorces will be legit.

      Thanks for joining in!

  • David Bibby

    While I’m certainly not an expert in this sort of thing, my gut feeling tells me that there will be more divorces for people buying into this type of insurance. Nobody wants to be reminded month after month that their divorce insurance bill is due. I also imagine that you cannot be the one who FILES for divorce (wouldn’t that indicate a conflict of interest?).

    Another thing is how do you communicate something like this to your spouse? My guess is you don’t, and you hide this fact from your spouse. Hiding things is sure to cause tension, which may ultimately lead to divorce.

    The words “self fulfilling prophecy” come to mind. What do you think?

    • David/moneycrashers

      David

      I think its a highly “self-fulfilling prophecy” kind of thing.

      Plus, how would you even have a calm discussion with your spouse about this?

      I’d imagine she’d boot you out the door for even bringiing it up!

      Thanks for chiming in…

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