Divorce is a stressful time for families and raises a number of difficult questions. Is there hope of reconciling? Who will get custody of the children? How will your property and assets be handled?
The last thing on your mind is your insurance policies.
The coverage you shared as a couple or family is a major priority. You, your spouse and your children can’t go without insurance, but your current policies can’t simply remain the same: they’ll need to reflect and address the separation to make it financially easier on everyone.
How do I handle my insurance during a divorce?
Getting your insurance in order involves several parties — not just your soon-to-be ex, but also your insurance providers (naturally), your employer and, yes, your attorney. That’s because insurance coverage is often part of your divorce settlement. Settling on coverage stipulations is challenging, especially if your divorce isn’t amicable. But keeping the lines of communication open can help you make rational decisions, reduce costs and keep you and your loved ones covered.
Here are some insurance changes you and your future ex should keep in mind during a divorce:
If you have health insurance through your employer, your current health insurance can stay intact. But, often, one spouse is covered under the other spouse’s employer-sponsored group insurance plan. If that spouse is you, you’ll need to find your own policy following the divorce — unless your settlement allows for continuation of coverage.
If it doesn’t and you find yourself uninsured, you have a few choices:
Keep your ex-spouse’s coverage for a limited time (up to 36 months) through the Consolidated Omnibus Budget Reconciliation Act, commonly known as COBRA coverage. (More about COBRA here.)
Find your own insurance policy. Open enrollment for health insurance doesn’t begin again until the end of the year, but you’re likely eligible for a plan under a Special Enrollment Period, since a change in health coverage stemming from a divorce is a qualifying event.
Start coverage with your employer. Like open enrollment, your divorce qualifies you to sign up for coverage even if it’s outside your workplace’s enrollment period.
First, notify your current car insurance provider of the divorce, and make any necessary changes to car ownership or designated driver status for the affected vehicles. Also let your insurance carrier know if you’re moving after the divorce. Next, shop around for your own auto insurance policy. Removing a spouse from your car insurance (and vice versa) ensures you aren’t held liable for any future insurance claims your ex-spouse may incur that could affect your coverage, says the Insurance Information Institute.
If there are teen drivers in the household, they’ll need coverage, too. Generally, they’ll go on the custodial parent’s policy. If your spouse is still paying for the your car insurance post-divorce, make sure your carrier knows how to contact you in the event of a payment lapse so your coverage doesn’t get canceled.
Remember, if you decide to switch insurance companies, shop around for the right rates, since you’re probably ineligible for the discounts you may have had when bundling your household’s insurance policies together.
Homeowners or renters insurance
If you become the primary owner or mortgage holder, your ex’s name should be removed from your homeowners insurance policy. Home insurance should be kept in both names if the house will continue to be jointly owned, regardless of who continues to live there.
If the divorce settlement requires you to move out and you’re planning to rent, don’t underestimate the importance of renters insurance. A renters insurance policy will protect your belongings and personal property from damages and losses from fire, theft, and other events. And it’s not just the stuff inside your apartment. If you’re in transit and between residences following a divorce, renters insurance covers the things you have in storage, too.
First, you may need to change your beneficiaries. We’re hedging here because your divorce decree may mandate keeping your ex-spouse on your life insurance plan.
That way, if you passed away, your policy would protect them and your dependents from the loss of alimony, child support or other financial assistance. You may also want to voluntarily keep your former spouse as a beneficiary to ensure their financial protection in the event of your death.
A divorce settlement may also require you to purchase a life insurance policy if you didn’t have one previously to provide this protection. Divorce is also a scenario where it might make sense for you to own a life insurance policy on someone else – namely, your ex. This way, if your ex passes and you were relying on their child support payments, you’ll be able to receive the death benefit to pay for you and your children, but you don’t have to rely on him or her to make the premium payments (which you can ask for the money for in the divorce settlement.
There are two major types of life insurance: term life insurance or whole life insurance. We generally recommend a term life insurance plan. It’s more affordable than a whole life policy, and it’s easier to structure your terms and the coverage amounts you choose. You can learn more about the pros and cons of term life insurance here.
Disability insurance falls into a similar camp as life insurance — your divorce decree often stipulates an ex stay on as a beneficiary or requires you take out a separate disability insurance policy. That way, if you become injured or sick and can’t earn an income to pay for spousal or child support, your policy will kick in and help your former spouse and/or children cover their expenses. Several factors go into calculating disability insurance rates, but in general, coverage amounts and payouts are a portion of your income.
Divorce is rarely a clean break, including the financial aspect. There may still be some financial obligations you’re responsible for, and insurance may end up being the one thing that keeps you invested in your former relationship.
Try looking at this in a positive light. Providing your ex, dependents and yourself with the proper insurance coverage may end up being the first step you need to alleviate stress after a divorce.