Written by Hanna Horvath, Policygenius
Insurance may not be the first thing you think about when going through the divorce process. Divorce can be overwhelming — couples often have to make hard decisions on how to divide up their financial assets (which is why it’s important for couples to discuss money in the first place). But paying attention to your insurance details during the divorce can prevent future financial issues.
“Couples should keep in mind what the terms of their current policies are and try to replicate them for both parties as closely as possible,” Laura Wasser, CEO of It’s Over Easy, explained to Policygenius. “This assumes that the policies in place are good ones, if not, perhaps it is time to change for the better.”
Almost every type of insurance is impacted in some way by divorce. Here are some of the insurance changes to make after a divorce.
When going through a divorce, you’ll want to consider what happens to any current life insurance policies and whether new policies should be part of the divorce agreement.
There are two types of life insurance: term life insurance, which lasts for a set term and has no cash value, and permanent life insurance, which lasts until death and has a cash value. Permanent life insurance policies are counted as assets in a divorce, while term life insurance policies aren’t. This guide can help you learn more about the difference between term and permanent life insurance.
Aside from permanent life insurance policies needing to be listed as assets, divorce does not automatically change anything else about the policies. It is up to the policy owner to change beneficiaries. If you’re currently listed as the beneficiary of a policy your ex owns, they can change your beneficiary status without telling you. Likewise, you can change the beneficiaries on your own policies.
Additional life insurance policies are often included in a divorce agreement to protect alimony payments, child support payments, pension or retirement funds one spouse is meant to receive from the other.
Many judges will order the breadwinner to have life insurance to ensure their financial obligations to their former spouse are met, even if they unexpectedly pass away. If the divorce settlement includes alimony payments or child support payments to your ex-spouse, or a portion of your pension or retirement savings, life insurance may be an additional part of your divorce decree. This is called court-ordered life insurance, and you will usually be given a deadline to get a policy in place. Looking for life insurance? Check out this list of best companies.
Disability insurance protects your ability to earn an income. Today’s 20-year-olds have a one in four chance of becoming disabled before they reach retirement age, according to the Council for Disability Awareness. If you earn an income, you should consider disability coverage.
A divorce agreement may require you get disability insurance if your spouse depends on child support or alimony payments, similar to court-appointed life insurance.
“Getting a disability will affect a spouse’s ability to pay,” said Michael Sampson, a divorce attorney from Florida. “One spouse should have disability insurance to secure the main child support.”
If you have your own health insurance coverage, you won’t have to change anything during the divorce. But if you are listed as a dependent under your ex-spouse’s health insurance, you will have to switch plans.
Getting divorced is a qualifying life event that makes you eligible for a special enrollment period. You have a few options:
- Sign up for health insurance via your employer, if they offer it.
- Get a private policy or one on the federal health insurance marketplace — check out this state-by-state guide to see what the rules are where you live.
- Keep your ex-spouse’s coverage through COBRA for up to 36 months. To elect coverage, let your health insurer know you are getting divorced. With COBRA, you pay the full price of the plan plus a two percent administrative fee. Because employers often subsidized health benefits, this may end up being much more than you are used to paying every month.
“COBRA can be more expensive than going on the marketplace,” said Sampson. “You need to look at your costs and do your homework.”
If you have children, Sampson recommends leaving them on whichever spouse’s plan they are currently on, and deduct the cost from the alimony.
Auto & homeowners insurance
“After the divorce, both parties need transportation. They need somewhere to live,” said Sampson.
You’ll probably have to get your own auto insurance and homeowners insurance when you get divorced. Once you’ve divvied up the cars and decided on living arrangements, it’s time to get your insurance policies in order. Both ex-spouses need to have their own auto policy.
If the car insurance policy is in your name, you can remove your ex as a driver. They will have to get a new policy. If you have teen drivers, they will need to be listed under both parent’s policies.
The same goes for homeowners insurance. Whichever spouse moves out of the home should be removed from the policy. If you move to an apartment during or after the divorce, you’ll need to shop around for renter’s insurance.
Both auto insurance and homeowners insurance should be factored into the calculation of alimony.
Lowering the cost of divorce
When is comes to having an easy (and cost-effective) divorce, education and communication is crucial.
“Learning the law in your state and applying it to your circumstances in a reasonable way while communication with your spouse about how to resolve the issues incident to divorce is key,” said Wasser.
It’s Over Easy guides couples through the divorce process without lawyers. Resources include property allocation tools, child support and spousal support calculators, custody calendars, explainer videos and filing services.
Insurance is complicated, and divorce can complicate it even further. Start getting prepared as soon as possible to avoid losing coverage down the line.