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Insurance Issues to Consider in the Event of a Divorce

Insurance Issues to Consider in the Event of a Divorce

Divorce can be a long and complex process, with various emotional, practical, and financial implications for spouses and children who may be affected. It can be easy to overlook the basics in such a stressful time, like family insurance. However, it is important to review all insurance policies to determine how your coverage may change when the divorce is final and, more importantly, how to prepare for it.

The two main types of insurance that usually come into play in a divorce are health insurance and life insurance.

Health Insurance

It is common for one spouse to be covered by the other spouse's sponsored health plan, usually with a higher income. The COBRA (Consolidated Omnibus Budget Reconciliation Act) was passed in 1986 to help spouses who do not earn income after divorce, allowing them to continue their coverage under the ex-spouse's employer plan for up to three years.

While COBRA can be a convenient cover, it is usually not the most cost-effective option for the premium paying spouse, which is typically the employer's and employee share of the premiums, plus up to 2% additional for the cost of management. Plus, the three-year limit makes it a better short-term solution. With the enacting of the Affordable Care Act (ACA) in 2010, more affordable health insurance options may now be available for people who do not have access to their employer-sponsored health plan, even if they have pre-existing conditions. These options are worth exploring before signing up for the Consolidated Omnibus Budget Reconciliation Act.

Life Insurance

This can be an important consideration in divorce cases, especially for those who expect to receive child support. Support generally ends when the payor dies. However, unless the child support recipient inherits other assets to replace the child support payments, the flow of the payments may be taken over by the payor's life insurance policy.

Life insurance is sometimes required as part of a divorce agreement. In this case, it is usually preferable that the beneficiary's spouse owns the policy and makes the necessary premium payments. This way, the beneficiary spouse maintains control over the policy, ensuring that no changes or missed payments are made without their knowledge.

Finally, any necessary life insurance should always be in place before the divorce is finalized. If it turns out that the paying spouse is not insured, appropriate changes can be made to the divorce contract. In some states where a spouse has a life insurance policy and is no longer insurable, the existing policy may be considered marital property.

As with any problem that arises during a divorce, figuring out how to handle changes in your insurance policies and coverage isn't always as straightforward as it sounds. It is important to be aware of all existing divorce policies and any new policies you may need due to the agreement. Because insurance can be a complicated subject with a variety of options, it can be helpful to seek the help of a financial expert or insurance professional to determine the best solutions.



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