Published: January 2016
We all think that it will never happen to us, but relationships sometimes fail.
Whatever the reason for the end, a divorce is never easy. As two people begin to separate their emotional lives after years together, the situation is further complicated by the need to disentangle friends, extended families, possessions, finances and, yes, insurance.
Insurance is among the financial considerations you'll likely need to make during a divorce, the Insurance Information Institute (III), says. You'll want to make sure the appropriate protections are in place as you allocate belongings, move and begin your separate lives.
The III says the common insurance issues that a divorcing couple may want to consider include their car insurance, homeowners or renters insurance and any disability or life insurance they may have.
Car insurance: Notify your insurer of any changes to the ownership or designated drivers of a vehicle, says the III. Also, be sure to separate policies if your partner moves to another residence, the III says. If your partner is still paying for your insurance after a divorce, the III also suggests making sure the insurer has your contact information so you can be notified if payments are no longer made. If you have joint custody of teen drivers who are covered on your policies, you'll want to make sure they have appropriate coverage, too. Resident household members are usually covered, so if the children are principally members of a different household, they may need to be covered under that parent's policy.
Homeowners or renters insurance: A separation or divorce typically means that possessions will be divided between the individuals and, often, at least one of the partners will change residences. The III says that it is important to keep your insurer informed of changes in your residence and possessions so that you make sure you're still protected.
Disability insurance: The III cautions that if a former spouse becomes disabled and unable to work, alimony and child support payments may be at risk. In fact, among people between 25 and 55 years old, an individual is twice as likely to become disabled than deceased, so the III suggests speaking with your insurer about whether a disability insurance policy may be appropriate for you or your former partner.
Life insurance: While you may consider making changes to your life insurance policies after a divorce, make sure you talk to a financial professional before making any decisions. The III cautions that you may want to leave your former partner as your beneficiary — especially if you have children together. If you were to pass away, life insurance may help provide financial assistance for things like college payments, alimony or child support. The III adds that in these situations, term life insurance may be more appropriate than whole life insurance because it may be less expensive and can be structured to help protect the children until they reach a certain age, the III says. A financial professional can help you sort out your existing policy and make decisions for new coverage.
In an emotional situation like a divorce, it's important to step back and consider carefully how you will manage your transitions from a couple to two individuals. Making insurance decisions may help ensure that you, your partner and any children are properly protected.