The Implications of Divorce and Insurance
Divorce can be highly stressful and emotionally taxing. Many important decisions need to be made under less than ideal circumstances. Some of the decisions that must be made concern insurance.
Divorce and insurance can be a bit more complicated for high net worth couples. There may be multiple homes involved, watercraft, aircraft, valuable collections of art, antiques, jewelry, and other assets for which insurance must be discussed or negotiated, and agreed upon.
This article is intended to help divorced individuals, or those in the process of getting divorced, address the various joint policies they have as a couple. Whether they should keep existing policies, change ownership of the policies, what the financial ramifications will be, and more will be covered
Let’s look at various types of insurance and how coverage is best structured due to a divorce.
The first instinct many people have when it comes to insurance is to get their ex-spouse off of “their policy” as soon as possible. But, in truth, it’s no one’s policy, it’s still a joint policy, and both parties must agree to remove one or the other to avoid canceling an auto policy altogether.
If agreed upon, one spouse can consent to be removed from the policy. If one spouse is moving out, they should let the insurer know the new garaging address as soon as possible and the new mileage they’ll be driving to work and back home, if applicable.
Another consideration is teen drivers. Which parent’s policy should they be insured under? If one parent has primary custody, the children will usually be listed under their policy.
It gets a bit more complicated if there is joint custody and the children spend equal amounts of time with each parent. Teen drivers without their own auto should be listed under both parents’ policies to ensure they’re covered.
If the auto policy has been bundled with another policy, like a homeowner’s policy, and a discount is being applied to all policies under the home address, the spouse who is taking up a new residence elsewhere will be losing the bundle discount on their auto coverage.
One spouse may assume sole ownership of the home through a divorce, and the other spouse may move into a new home, condominium, or apartment.
The name of the spouse who will live elsewhere should be removed from the homeowner's policy. Depending on who remains in the home, the cost of coverage could decrease. For example, if the spouse who moved out took possession of valuable pieces of art, this could positively impact the existing homeowner’s premium.
The spouse who moved out of the insured residence and has new accommodations should immediately take out new homeowner’s or renter's insurance, depending on their situation.
An Umbrella Policy
The company that issued the umbrella policy should be notified of the divorce or pending divorce. The insurer will likely send each spouse a request for information if the policy is renewable before the divorce is final. They’ll then re-evaluate the risk and examine if the financial exposure of one spouse has changed substantially. At that point, the insurer may increase the premium or refuse to write a renewal policy for one or both spouses.
Life insurance can be the most complicated type of insurance a couple must deal with during a divorce. Alimony, custody of children, beneficiaries, and wills and trusts must all be taken into account.
When a couple divorces and has children, leaving existing life insurance in place until the youngest child is no longer a minor should be considered. An ex-spouse receiving alimony and child support could be placed in a precarious position if they were replaced as the beneficiary of a life insurance policy on the life of their ex-spouse. The financial well-being of children is paramount as decisions concerning life insurance beneficiaries are being made.
A change could be made naming a child, or children, as the beneficiary of the life insurance. However, minors under the age of 18 are not legally eligible to directly receive life insurance benefits. An attorney can draw up a trust for the benefit of the child, or the death benefit can be left with the insurance company until the child turns 18.
If one spouse is on their ex-spouse’s group health insurance plan, they will be dropped from the plan when the divorce is finalized. It’s important to note that children will not be automatically dropped from the health insurance plan after a divorce. Some states view legal separation the same as they do divorce, requiring that the spouse be removed from the health insurance policy.
The spouse who has been removed from the policy will need to apply for individual coverage with a health insurer, providing that their health history is acceptable for private insurers. If they can’t find a company to approve their application, coverage under the Affordable Care Act is an alternative to be considered.
Kelly Klee is Here to Help
We understand that divorce is never easy. We can help by assisting with new insurance that is needed or amending existing policies. We provide analysis, solutions, recommendations, and implementation, as well as complete confidentiality. Call us at 844-885-1600 if we can be of assistance.