How to Manage Insurance Changes After Divorce

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Divorce inevitably damages each divorcing spouses’ finances, even if they think they won the divorce proceedings. In the long term, the negative consequences of decisions made by yourself or imposed by the court can come to light. Can you protect yourself from them, and what role does your insurance policy play in this?


You should think about insurance and possible changes in it even before the question of divorce arises. Many couples do not want to contemplate such an outcome of their family relationship, believing that they will live happily ever after. Meanwhile, according to research, more than 40% of first marriages end in divorce within 5-7 years, and about 67% of second marriages are doomed to fail.


Brief overview

Insurance is an essential element of a person’s safety. It is a type of economic agreement designed to provide financial protection for people and their affairs from various dangers. As stated in Investopedia, four main insurance types provide basic needs in case of an accident: life, disability, car, and health insurance. For total security on all fronts, people also add home insurance to protect their place of residence.

The U.S. insurance business is absolutely huge, confidently occupying a leading position in its niche worldwide. According to the U.S. Bureau of Economics, the American insurance monopolies control about 50% of the insurance market in developed countries. About nine thousand of them are property insurance, and two thousand are life and health insurance companies.

These companies offer an extensive list of services to their clients while receiving unimaginably high profits. In the Forbes list of the world’s largest companies, insurance companies are among the top ten, and the largest have as much as $85B in profits and around $460B of market value.

While some insurance types are mandatory (car insurance) and sometimes even court-ordered (life insurance), others are optional. Nevertheless, we feel much more comfortable having protected ourselves and our families from all kinds of risks.


Health Insurance

Approximately 92% of Americans have health insurance coverage, as to U.S. Census Bureau reports. Although not mandatory on a federal level, this type of insurance is a life-savior in many instances, considering the prices for medical services. Bloomberg News reported that the cost of health coverage is ridiculously high, reaching $20,000 a year. The average premiums that an unemployed person must pay every month are $700-$900.

After a divorce, you can continue using your health plan if it is your individual coverage. If your spouse’s employer company provided you with insurance, you can keep it and pay for it out of pocket, or shop for an individual policy, which may be very costly. If you work for a company sponsoring its workers’ healthcare plans, you’re saved. Another option is to get short-term insurance while looking for an employer with healthcare coverage benefits.


Life Insurance

Life insurance comes in several types — temporary (term), permanent (whole life), and universal. In most cases, the spouse for whom the insurance is issued nominates their husband or wife as the beneficiary. It means that if the program owner passes away, their spouse will receive the death benefit. Other relatives will not be entitled to this money.

In theory, you can change the recipient of this money at any time, but this is not always the right decision. Let’s say you want your children to be provided for in the event of your passing. If they are minors, then they will not be able to receive the money immediately.

You can also name another person you trust as the beneficiary instead of your spouse. But remember that the court can order to make your spouse a receiver of the death benefit to ensure that your children’s future is secured. This is especially likely when you are responsible for child support payments.


Car Insurance

During a marriage, both spouses typically have one insurance company to cover all their vehicles. As a rule, married couples enjoy family discounts of an average of 10%. In the event of a divorce, you have about 30 days to inform your insurer about it. The company’s agent will make changes to your plan, stripping you from discounts for married couples. Consequently, the monthly payments will increase by 20-25%.

If you decided not to tell the company about your marital status change, they could cancel your policy upon finding out. Also, consider removing your name from a jointly owned policy for your spouse’s car, so you won’t be liable for anything that could happen to it in the future. Remember to add your teen children and other residents of your household to your policy.


Disability Insurance

There is short-term and long-term DI. A short-term DI is cheaper and does not require that the incident was work-related, making this type more preferable for an average American citizen, according to the data collected from Reddit social forums. It covers the time during which a person is off work due to temporary health conditions, including pregnancy.

In a divorce, you should consider the scenario when your spouse, liable for child support payments, becomes disabled and cannot provide for your kids financially. And vice versa — if something happened to you, who would support your children and provide for your own needs? However, if there are no children to support and your job is mainly low-risk, you probably can do without DI — it’s your call.


Homeowners and Renters Insurance

One of the most complicated issues in every divorce is property division and who gets the house. There are several scenarios of who moves out and who stays, or maybe the couple sells the house and splits the money. In any case, if you and your spouse have joint homeowner’s insurance, you will have to inform your insurer about the separation.

If you are the prime policy owner, you can remove your spouse from it by showing your insurer a divorce decree or cancel the policy entirely, but only on written consent from both you and your spouse. You cannot remove your name if you’re a deed holder, but you can remove yourself if your spouse is. If you’re the one who needs to move out, you might want to think about renter’s insurance to secure your belongings or cover damages that may be inflicted on the new place of residence.


Bottom line

Among the multiple issues to be considered and resolved during a divorce, insurance doesn’t always seem like the evident aspect that deserves immediate attention. However, a competent approach and timely action can save you from further difficulties and unpleasant surprises. The insurance issue is especially acute if you have minor children or substantial debts that can become a burden for your relatives if something happens to you. Plus, after a divorce, your life changes on many levels.

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