Can Divorce Insurance Keep You From The Poorhouse?
We have insurance for a lot of adverse events. Think about it for a moment. You are insured against an auto accident, catastrophic injury or illness, root canal, fire in your home, somebody coming to your door and getting bitten by your dog, hail, your death, and floods. Your jewelry is insured, if you're Troy Palamalu, your hair is insured and your visitor-biting dog? Even he's covered in case he has to go to the vet. (For related reading, also take a look at Get Through Divorce With Your Finances Intact.)
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Here's the interesting part: many of these events are much less likely to occur than some of the events that we've never thought to buy insurance against - for example, how about divorce?
The Cost of Divorce
In America, it doesn't seem like we are picking our mates very well. Divorce rates continue to rise and estimated to be between 40-50%. We're getting it wrong almost half the time and divorce is far more than a minor paperwork annoyance - it costs money and a lot of it.
The average cost of a divorce is higher than most of us would think. An attorney will cost you between $100 and $450 per hour with many divorces logging $25,000 or more in attorney fees. That could send one of your children to college!
If there are kids involved as well as two unwilling parties, the cost can go much higher than that, perhaps reaching as high as $40,000. Many are filing bankruptcy because of the divorce alone and some estimates show that those who go through a divorce lose as much as 77% of their net worth as a result. (For more information on bankruptcy, see Should You File For Bankruptcy?)
A new insurance product that is available offers divorce insurance for what may appear to be a small amount, has been the subject of numerous news articles touting the benefits of such a product but is it worth the cost?
The Pros of Divorce Insurance
First, let's look at perhaps the biggest pros: this insurance removes part of the financial burden. Divorce, like a death in the family, is traumatic enough and adding the financial burden to the already large amount of tragedy is enough to put people over the edge. Divorce insurance can help ease the burden of a difficult time.
In addition, divorce insurance can provide for the family. Even if two parents divorce, there is still a family and that family needs provided for. The kids have to eat, school expenses have to be paid, car payments, daycare for the spouse that now has to go back to work, and all of those expenses that we can't list here don't go away because you and your spouse are divorcing. Divorce insurance can help provide for your family once the dust settles.
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The Cons of Divorce Insurance
But is divorce insurance worth the cost? This type of insurance is purchased in units. One unit costs $15.99 per month for $1,250 of coverage. You can purchase up to 200 units or $250,000 in initial coverage.
The policy doesn't mature for 48 months, so in order to receive your payout you must remain married for at least four years, which means you have a minimum premium paid of $767.52 per unit before you become eligible to receive $1,250 per unit.
Although all of us go in to marriage assuming that we will be together forever, it doesn't always happen; but are you willing to put this kind of money into an insurance product such as this if you have a child to put through college, a retirement account that is largely underfunded or college debt of your own?
And how do you know if you will be among those that end up divorced? Wedlock has a divorce calculator that attempts to predict your probability of divorce.
The Bottom Line
Divorce insurance is as much a question of personal ethics as the act of divorce itself. No article can tell you if it is appropriate for you but consider this type of insurance in the bigger scheme of your family financial picture and of course, you must discuss the decision with your spouse. No great marriage has secrets. (For more information, see Getting A Divorce? Understand Rules Of Dividing Plan Assets.)