Insurance Facts and Tips
Divorce and Insurance
Upon divorce, the responsibility and expense of maintaining appropriate policies must be taken into account. Divorce may shift the responsibility for the maintenance of a variety of insurances, including health, auto, homeowner, and property. Payment of premiums on such policies can be part of the divorce settlement, and some insurance, such as life, may be assets in a marriage.
Courts sometime require a spouse to maintain life insurance to protect his or her former partner’s alimony. The payor is required to maintain insurance for the payee’s benefit.
Divorcing parents negotiate health and dental insurance for minor children as part of their separation agreement. Sometimes the spouses negotiate a qualified medical support order, which provides continued and uninterrupted medical insurance coverage of the child of the insured parent. In some cases, this qualified order, known as a QMCSO, can be part of COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage that also protects the former spouse. A nonemployee spouse in a terminated marriage is entitled to COBRA coverage for up to 36 months.
The final divorce decree, which should reflect the continuing medical and health insurance coverage of every member of the family, should also stipulate who will be responsible for unreimbursed expenses, such as the deductibles, co-pays, co-insurance, vitamins, over-the-counter items, or braces.
COBRA, which is the Consolidated Omnibus Budget Reconciliation Act, can help fill the void that had been occupied by employer-paid group insurance. COBRA guarantees that all individuals who are covered by medical insurance have the right to continue coverage for a monthly fee if employment or marital status changes. A nonemployee spouse in a terminated marriage is entitled to COBRA coverage at his or her own cost for up to thirty-six months. COBRA protects ex-spouses even after one of them remarries, for a fixed period of time, as well as employees who lose their positions. COBRA establishes a timeline for picking up coverage (which must be strictly observed), and it is very expensive.
A disability policy can be essential should an employment income source no longer be available due to disability. A single person who becomes disabled and unable to work, may be at risk, particularly if the former spouse who is providing financial support becomes disabled. A disability policy pays a monthly benefit, which is usually around 60 percent of gross wages. It is taxable if the employer pays the premium, or tax-free if the beneficiary pays at least a part of the premium.
The Division of Accrued Value
Many life insurance policies may have accrued cash values that must be accounted for in the division of assets. However, surrendering the policy for cash terminates the coverage, or, at the least, creates a loan and an obligation to pay back the cash amount or to reduce coverage under the policy. When continued coverage is required, cash surrender may not be right.
Change of Beneficiary
One of the important chores after a divorce is final is also one that is most often forgotten: changing the name of the beneficiary on any financial instrument that has one, including insurance.
SafeGuard Guaranty Corp., an insurance start-up based in North Carolina, recently released WedLock, which is promoted as the world’s first divorce insurance. This casualty insurance is designed to provide financial assistance in the form of cash to cover the cost of divorce. WedLock is sold in “units of protection.” Each unit costs $15.99 per month and provides $1,250 in coverage. A person who buys 10 units, receives a benefit of $12,500 and pays $15.99 per month for each of those units. In addition, every year, the company adds $250 in coverage for each unit. To prevent abuse, the policies don’t mature until 48 months after their effective date.
Preparing for the Golden Years
Nothing takes the luster off the so-called golden years like the need for long-term care Insurance. Practically everyone who lives long enough will need in-home care, assisted living support, and/or skilled nursing care. Very few people have sufficient assets to cover the cost of extended skilled nursing. Long-term care insurance, purchased when the beneficiary is young, meets the need, offering the coverage at lower premiums.
Resources & Tools
ACCRUED VALUE -- Many life insurance policies may have accrued cash values that must be accounted for in the division of assets.
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