What Happens to Your Insurance When You Divorce?
Life, health, home, auto, and more. What’s going to happen to your insurance benefits now that you are getting a divorce? Here’s a look at various insurance policy types, and what you can do to ensure coverage continues without interruption.
Life Insurance: Whether you have term or whole life insurance, check the beneficiaries on your current policy. Be aware that if you forget to change the beneficiary of your policy and you pass away, your ex-spouse could get the money if he or she is still named at the time. Who should you list instead? If you have children, we cover this issue in our article on estate planning: Estate Planning When Divorcing With Children In New Jersey.
Sometimes life insurance, because it can be such a valuable asset, becomes part of a divorce settlement. The cash value of any permanent life insurance policies may be considered during asset division.
Don’t have a life insurance policy? You may need to get one (or get a new one) as a way to ensure that money for child support or alimony will still be available in the event of death. Viewed in the context of long-term financial obligations, life insurance is a pivotal way to fulfill support terms, such as paying for a child’s college tuition. When choosing coverage, the total amount of these obligations should be taken into consideration. You can follow up with specific guidelines written up as part of an estate plan and/or your divorce settlement.
Health Insurance: Since it is rare for employers and health insurers to continue full coverage and premium costs for divorced spouses, if you have been covered under one family health coverage plan through your spouse’s job, you will need to investigate all your options for continuing coverage, or beginning a new policy in your name.
For starters, you may simply want to obtain health insurance through your own employer. If you do so, and you have more taken out of your paycheck as a result, make sure this is noted in your divorce financial documents, since changes in take-home income can affect certain support formulas.
Another option is to seek coverage under the federal law known as the Consolidated Omnibus Budget Reconciliation Act, or COBRA. The law allows someone going through a divorce to stay on a spouse’s group policy for up to 36 months. The big drawback of COBRA is that it requires payment of the full insurance premium (with no employer offset). However, this option can help prevent a gap in coverage, which may be important if you are currently undergoing treatment for a medical issue.
In some cases, spouses can negotiate to have their COBRA premiums paid by their ex-spouse and possibly have additional money set aside for future insurance premiums. This is particularly true if a spouse is disabled or has been unemployed because they were a stay-at-home parent and are now facing difficulty finding a job that offers health insurance.
As for children, if both parents are working and have access to health insurance, couples will need to decide which spouse will provide the children’s health insurance coverage. This amount is generally taken into consideration when determining child support costs.
Our blog post, Will Divorce Mean Losing Your Health Insurance Coverage? offers additional information on the topic.
You may have moved out of your home once you decided to split, but if your name is still on the mortgage or deed, make sure the insurance on your home is paid and up-to-date. In the event homeowners insurance lapses, and something happens to the home, such as a fire, or something happens to someone while on the property, you could be held liable.
If you are removed from the deed or mortgage, contact the insurance company immediately to have your name removed from the policy. Likewise, if you are the spouse who will keep the house, you will need to notify the insurer that you are the sole policy holder. Please note that new rates may apply in this case.
If insurance premiums do change, you can generally incorporate that information into your estimated expenses before finalizing a divorce settlement.
If you have two cars and you are each keeping one, depending on your current policy, you may be able to simply drop the name of your spouse from your current policy, or renew under a different policy. Be aware that if your home, life, and car insurance policies were bundled as a package deal under one insurer, you may no longer be eligible for whatever discount plan you had previously negotiated.
Again, whatever rates you come up with, make sure a copy of this is submitted with your financial and monthly living expense documents. For example, a parent who spends more time with the children as part of the child custody arrangement may argue that part of car insurance costs should be covered by the other parent if that vehicle is used to bring children to and from school, etc.
What will happen after divorce should something happen to your income because of an accident or illness? It can be difficult to handle the financial burden these kinds of situations often present, which is why many divorced individuals opt to purchase disability insurance Generally, disability insurance is available through an employer or can be purchased privately as long as you are currently working. Policies typically pay only 60% or so of a person’s income, so if a divorced spouse paying alimony becomes disabled and collects benefits, the former spouse receiving alimony may get a reduced amount if a judge orders alimony support modification. Likewise, a disabled spouse may qualify for more in support payments.
One other tip? It’s always a good idea to review all policies to make sure they work with your post-divorce finances, and life circumstances. Adjust coverage as necessary to meet your needs.