Concerned about Divorce? There's Insurance For That

Most of us have auto insurance, health insurance and homeowner's insurance. Some of us have umbrella insurance, disability insurance and life insurance. One type of insurance that the majority of us do not have is divorce insurance, an insurance policy that is meant to help you pay the costs of getting a divorce. But if one insurance company has anything to say about it, Americans soon will begin adding divorce insurance to the long list of other casualty insurance policies they already carry.

The Wedlock Policy

SafeGuard Guaranty Corp., an insurance company start-up based in North Carolina, recently began offering a novel product: divorce insurance. Called "Wedlock," the insurance can be purchased in units, with each unit costing $15.99 and providing $1250 in coverage. For each year that a policyholder keeps the policy, SafeGuard will throw in an extra $250 in coverage per unit.

The policy works like this: when an insured gets a divorce, he or she simply sends in proof of the divorce and the insurance company will send them a check for the lump sum value of the policy. This money then can be used to pay attorney fees and other divorce-related expenses as well as help the new divorcee pay for housing.

To prevent people who know they will be divorcing from purchasing the insurance and cashing in, there is a 48-month waiting period before the policy matures and benefits become available. For an extra $30 per unit, individuals can purchase an "accelerated maturity rider," which cuts down the waiting period from four years to three. Individuals also can purchase a "return of premium rider," which allows them to recoup the money they put into the policy should they divorce before the maturity period expires.

The Chairman and CEO of SafeGuard, John Logan, has billed his product as just another policy meant to manage risk. In interviews, Logan has argued that the risk of getting a divorce is much higher than some of the other risks that Americans insure themselves against. According to SafeGuard's web site, 32% of first marriages end within eight years and two-thirds of second marriages end within 15 years. The company's web site also includes a divorce probability calculator so that those considering purchasing the insurance can determine if they have a "need" for it.

Better Ways to Spend Your Money

Not everyone is convinced that divorce insurance is the way to go. For example, several critics have pointed out that you don't get very much for your money. If an individual buys 10 units, they will spend nearly $4,000 in a two-year time frame for only $12,500 worth of coverage. Many have argued that it makes more financial sense to take the money that would have been used to buy the policy and instead stick in a savings account.

Logan, however, contends that putting the money in a savings account will not yield the same return as Wedlock since SafeGuard will add an additional $250 per unit to the policy each year it remains in effect. He also says that funds in a savings account could be spent by one spouse or taken during divorce. However, insurance proceeds also can be included in the assets that are divided in a divorce, so funds kept in a Wedlock policy are not necessarily protected from inclusion in a property settlement.

In addition, the policy also is potentially risky - and not just because policyholders may never get divorced. The underwriter of Wedlock, Prime Insurance Company, currently is not covered by any state guaranty funds. This means that if the insurance company goes bankrupt, the state will not honor the policy and policyholders will be left empty-handed.

Protecting Against Divorce

For those who are truly concerned about what may happen to their assets should they divorce, the best way to protect themselves is not with an expensive insurance policy, but with a contract. By creating a prenuptial or postnuptial agreement, those who are about to get married or who already are married can take proactive steps to protect themselves and their property in the event of divorce.

For more information on prenups, postnups or other issues related to divorce, contact an experienced divorce lawyer today. The attorney can discuss strategies to protect yourself, your children and your assets during marriage and afterwards.