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Sunday, February 13, 2011

Give the Valentine's Gift That Keeps On Giving -- Divorce Insurance

Are you a married couple looking for a unique, strangely sensible Valentine's Day gift? What is more important than to care for your spouse's safety and well being? This gift offers those benefits, and, at the same time, manages to say "I love you" even when you may really be thinking about anything else but spousal affection. Romantic? Hell, it's likely you don't know the meaning of the word anyway.

SafeGuard Guaranty Corporation is an insurance start-up based in North Carolina. It is billing the world's first divorce insurance product. That's right -- divorce insurance. Talk about a thoughtful Valentine's gift that could benefit both spouses. For many couples, "true love" is certainly housed in a potentially temporary, fragile environment. And, divorce insurance may just encourage some couples to cooperate and to remain married.

Of course Mom and Dad said, "Before you get married, you need to know who you are and know who your spouse is - and know what love means." We all have heard this wonderful piece of advice. Whether love blinds or love fades, unions, once stable and strong, often fail. Becoming a "stranger overnight" is cliche for wedded couples.

Let's face facts. Divorce rates are nearly 50%. Divorce is the #1 reason for bankruptcy and poverty among single mothers worldwide. Every year almost half of all families that go through divorce end up below the poverty line. And the reason is that on average, people lose 77% of their total net worth as a result of divorce, so WedLock Divorce Insurance claims they may certainly offset some or all of that loss depending on the size of the policy purchased.

To encourage consumers to buy divorce insurance, SafeGuard presents many rather depressing stats.What are the odds of your house burning down for example? About 1 in 300 in any given year if you go by statistics of annual house fires versus the number of individual households here in the US. A little higher for flood damage over the life of your mortgage, that’s 1 in 60.

And actuaries using standard mortality tables peg the odds of you dying over any 20 years in your lifetime at 8 out of 1000 (or 1 in 125). Disability comes in even more frequent at 1 in 80 and yet far too few people insure their income in the event they are disabled to the point that they can no longer work (which is what disability insurance actually does) even though that income is what pays for everything else.

According to SafeGuard, here are the staggering odds of divorce. The odds that you’ll divorce if you’re on your first marriage are about 1 out of 3 (32%). Compare that to the odds that you’ll be in a serious car accident in the next decade - 1 in 4 according to the US Census 2010 Statistical Abstract. And auto insurance is mandatory.

For people already on their second marriage? Their odds of marriage failure are 2 out of 3 (67%). Third marriages and beyond are almost 3 out of 4 (72% fail).

Divorce Insurance

This WedLock casualty insurance is designed to provide financial assistance in the form of cash to cover the costs of a divorce, such as legal proceedings or setting up a new apartment or house. It is sold in “units of protection.” Each unit costs $15.99 per month and provides $1,250 in coverage. So, if you bought 10 units, your initial coverage would be $12,500 and you’d be paying $15.99 per month for each of those units. In addition, every year, the company adds $250 in coverage for each unit. (Jennifer Saranow Schultz, "Divorce Insurance: Yes, Divorce Insurance," The New York Times, August 6 2010)

With the added units, if someone who invested in 10 units got divorced after being married for 10 years. The newly single spouse would have paid $19,188 for coverage, and would get back a payment of $27,500. (Rosemary Black, "Divorce Insurance: Unromantic Wedding Gift Could Save You If the Union Fails," The New York Daily News, September 23 2010)

Here's How Your Gift Works

If you get divorced and your policy has matured, you would send WedLock proof of your divorce. In return, you’d receive a lump sum of cash equivalent to the amount of coverage you had purchased.

So how does the company prevent people who know they are going to get a divorce from signing up? To prevent that kind of adverse selection, the policies don’t mature until 48 months after their effective date (though people can purchase additional riders to reduce that maturity period to 36 months and to get their premiums back if they happen to divorce before the policy matures).

And, what about other possible selection problems related to people with volatile relationships or a family history of divorce purchasing policies in large numbers? John A. Logan, chief executive officer of SafeGuard Guaranty, said the company has performed risk assessment and actuarial studies with this in mind. He notes that even in the worst case scenario, not all of those divorces would happen at once.

But, wouldn't you be better off to put money into a savings account that earns interest for "rainy day" expenses rather than paying for such coverage and then possibly never getting divorced? You say you are never going to get a divorce anyway. Insurance is for safety though and most people don't have the discipline to save adequately just "in case" the unthinkable happens.

In response to this, Mr. Logan said that while people could end up with more money that way, there’s always the chance that money would be squandered by a soon-to-be ex spouse. He also argues that the $250 per-year appreciation per unit is much more than the minuscule returns available today on savings accounts.
“There is nothing to stop your spouse from raiding those investments and taking it all. And then with all the money gone, you’re left with all the legal bills,” said Mr. Logan, who said the idea for the product came from his own experience with a financially painful divorce.

Another possible downside of the coverage: the policies, which are being underwritten by surplus lines insurance company Prime Insurance Company, aren’t covered by any state guaranty funds that would honor them if the provider goes bankrupt. But Mr. Logan said the company plans to have the policies fall under such programs in the future.

To help people determine whether they need the insurance, the company has a Divorce Cost Calculator and a Divorce Probability Calculator, amon other similar calculators on its site.

Lay Your Money Down

"That’s it! Less than 53 cents a day is all it costs to get started with the base plan. And for high net worth individuals, you can protect yourself up to a maximum initial benefit of $250,000 per policy, which will grow over time to a maximum payout of $1,250,000 per policy." (WedLock Divorce Insurance Company, 2011)

So how about it? This Valentines Day are you ready to pony up about $16 a month for what starts at just $1,250 of coverage to say, "I love you until divorce do you part"?

WedLock Divorce Insurance site:

"D-i-v-o-r-c-e" by Tammy Wynette

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