Tips to Protect Yourself and Your Children
Divorce impacts virtually every aspect of your life, and insurance is no exception. Following a divorce, it’s important to ensure you and your children maintain adequate insurance coverage to protect you from unexpected circumstances. Here are several important considerations by insurance type.
Life Insurance
If you have an existing life insurance policy, be sure to review your beneficiaries following your divorce (remembering to also review any group policies you may have through your workplace). If your former spouse is listed as your beneficiary, and this isn’t changed following your divorce, your ex-spouse would receive the death benefit. Many people choose to change their beneficiaries to their children; keep in mind that minor children cannot inherit or manage money, so you’ll want to make sure to meet with an estate planning attorney to ensure the benefit paid to them is held and managed on their behalf according to your wishes.
If you don’t have a life insurance policy and have been granted primary custody of your children, it may make sense to acquire a policy to provide for them should something unexpected happen to you. If your ex is paying you alimony or child support that you depend on, you may also want to take out a life insurance policy on him/her to protect yourself and your children for as long as you depend on that income. Oftentimes your property settlement agreement will require you to maintain your life insurance coverage for these reasons, so be mindful of checking that before letting a policy lapse.
Health Insurance
If you were previously covered under your ex’s health insurance plan, it’s unlikely you’ll continue to qualify as a dependent following divorce. Fortunately, most insurance providers consider divorce a qualifying life event, so you should be eligible for a new policy, either through your own employer, on the health insurance marketplace or by enrolling in COBRA coverage through your ex-spouse’s plan.
If your ex was previously covered under your employer-sponsored health insurance, he/she may be eligible to temporarily remain on the plan through COBRA; however, this option is likely to require a significantly higher premium payment, so it may make more sense for him or her to purchase a new policy.
Car Insurance
You may be surprised to learn that your ability to share car insurance often depends on where your cars are registered and kept at night. If your cars reside at the same location, you and your ex may be able to remain on the same policy, which can make it easier to qualify for policy discounts.
On the other hand, if your cars are garaged at separate residences, regardless of whether you are legally divorced, you will most likely need to establish two separate car insurance policies.
If you carry children on your auto insurance policy, you’ll need to make sure they remain covered should you implement new policies. Sometimes the parent responsible for carrying a child’s insurance is noted in the divorce decree, so be sure to consult this document before making any changes. When residency and responsibility for the child’s auto insurance differ, it’s important that the parties coordinate and fully cooperate with each other on the matter. Many important provisions in an auto policy provide coverage that doesn’t relate to the specific vehicle but rather is provided by residency. There are also considerations for occasional and incidental use of an auto. So, while the non-resident parent may own the vehicle and be paying for the vehicle coverage, the resident parent may still have to incur costs because the child resides with them. Make sure you discuss all these details and have copies of all pertinent insurance policies handy for review.
Homeowners/Renters Insurance
The homeowners insurance policy should be in the name of the spouse who remains in the home following a divorce. If you are currently named on your existing policy, making a change may be as easy as requesting a policy endorsement through your insurance company or by speaking with a representative. If the person leaving the home is still on the mortgage and/or deed of the home, make sure their name stays on the policy as well. If you are no longer a resident of the home, request to be listed as an additional insured until the ownership has transferred.
If you’re staying in the home, it’s important to review your current policy to determine whether your level of coverage is still appropriate. You should have enough coverage to pay for the expense of rebuilding your home at today’s prices.
The spouse who moves out should purchase an appropriate homeowners or renters insurance policy to cover his/her new residence. One thing to keep in mind is that homeowners insurance will often limit or not cover items in another household. So, if you move out of your family home but leave some belongings behind, be sure to notify your insurance company to see if you can extend your coverage.
Disability Insurance
If you depend on your former spouse for income, you may be in a tough spot should he/she become disabled and unable to work. To protect yourself and your children, you might consider purchasing disability insurance to cover your ex. When compared to workplace and private disability coverage, private insurance typically provides the best coverage. Although it’s often the most expensive option of the three, private insurance typically replaces 50% to 70% of a disabled person’s income, and when premiums are paid by an individual, any benefits received are tax free.
At Creative Planning, we understand how challenging all aspects of a divorce can be. Our wealth managers are supported by experienced insurance professionals who work as part of your team to implement custom strategies based on your needs. We focus on providing you with a clear path forward by helping you to determine your financial need, gain an understanding of your options and make decisions that are in the best interest of you and your family. For help with your insurance needs following a divorce, or any other financial matter, schedule a call with a member of our team.
