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.
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)