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Divorce Insurance

Divorce InsuranceDivorce insurance, created in 2005, has entered the marketplace as a means for any married person to guard against the economic difficulties that accompany divorce. Divorce remains prevalent in American society and it can be an expensive proposition.

Attorneys’ fees alone can cost each spouse quite a lot, without even getting to the ongoing financial challenges that each spouse often faces after the divorce. According to Divorce Statistics the average cost of a divorce ranges from $15,000 to $20,000.

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Legally, divorce insurance is a type of casualty insurance that pays out a cash benefit in case your marriage ends.

You might think of it as a sort of life insurance for your marriage.

The lump sum benefit you would receive can be used to pay legal costs, help you cover alimony or childcare payments, or provide a financial cushion as you transition into your new life. In truth, you can use the cash payout for any reason at all. There aren’t legal restrictions on how the money is used.

How It Works

Divorce InsuranceDivorce insurance is sold in units. Each unit has a fixed price and offers a certain amount of coverage per unit. You increase your overall amount of coverage by buying more units.

Thus, a policy of five units offers half as much coverage as a policy with 10 units. By using the unit system, you can decide for yourself how much coverage makes sense for your situation.

You can typically increase the number of units over the life of the policy if you feel more coverage is required. The benefit value of each unit also appreciates each year, so your coverage will grow even if you don’t buy more units.

During the life of your policy, you pay a monthly premium, based on units of coverage, just as you would with any other insurance policy. If you don’t maintain your payments, your coverage will lapse. However, assuming you’re current on your policy and get divorced, you can then file a claim with the insurer.

In order to file a divorce insurance claim, you’ll provide proof of your divorce to the insurer. Once your insurer has this proof, it will release a lump sum payment of your total coverage owed. This is an insurance contract, so there is some fine print. Here are some of key points to understand before buying divorce insurance.

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Maximum Benefits

Why Divorce InsuranceWhile you can purchase the number of coverage units that suit you, there is a maximum limit of coverage you can buy. Therefore, you should clarify how you’ll want to use the benefit when you purchase the policy. If you have an idea of how you’ll use the coverage, you won’t purchase any more than you’ll need.

Waiting for the Policy to Mature

An insurer wants to make sure that people don’t game the system by purchasing divorce insurance right before they’re planning to file for divorce.

To protect against this, you aren’t eligible to receive any benefit from the policy until it matures, which usually doesn’t occur until you’ve had the policy for 48 months.

However, there are various riders you can get that reduce the impact of this 48 month waiting period.

One option is to pay to have the eligibility period reduced to 36 months. Another option is to purchase a rider that offers partial premium reimbursement if you divorce before the policy matures. In this case, you won’t get your benefit, but at least you won’t have lost the full cost of the premiums.

Insurance is a highly regulated industry. A company generally needs approval from state regulators to offer a new insurance product. Therefore, divorce insurance might not be available in your state.

Who Needs Divorce InsuranceFinancial Questions of Coverage

The other important point of this fine print to understand is that divorce insurance isn’t protected by state guaranty associations. For other types of insurance, such as property coverage, states generally have a guaranty fund that will take over an insurance company’s obligations if it’s financially unable to do so.

There is no such protection for divorce insurance. This means if the insurance company has financial difficulties of its own and can’t pay out on your policy, there is no backstop.

As a fairly new product, a number of legal issues still surround divorce insurance. The most critical issue is whether the proceeds from the policy are be considered a marital asset that must be split.

To date, no court has ruled on this issue, but it’s an important risk to keep in mind. This can be especially true if the premiums were paid using money earned during the marriage.

Who Could Benefit

Anyone who is married may benefit. While it might seem unromantic, you can compare it to have a prenuptial agreement. It might just be good protection against unforeseen circumstances.

Purpose Of Divorce InsuranceHowever, divorce insurance serves a different purpose than a prenuptial agreement, so shouldn’t be seen as a replacement for it. Regardless of whether you’ll owe alimony or have a distribution of assets, which your prenuptial agreement will govern, divorce insurance can be there to mitigate your costs.

One of the benefits it has is that you don’t need your spouse’s agreement, or even knowledge, to sign up for divorce insurance. It’s a personal insurance with a benefit to you.

It can also be purchased on someone’s behalf, which can make it an interesting and valuable wedding gift from your parents or a concerned friend. Just be prepared for it to be a controversial gift too.

Whether divorce insurance is worthwhile can only be a personal decision. As with any insurance, you might only feel the real value of it once you need it.

To find out the cost of a policy just plug in your ZIP code and compare divorce insurance quotes today!

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