Insurance Matters After Divorce: Preparing for Changes to Automobile, Homeowner’s, Life, and Disabil

Your divorce is final and you’ll be taking a serious look at your finances as you move forward with your new life. Set aside some time to review your insurance coverage and read your certificates of insurance. Your circumstances have changed, significantly. Does each policy provide the level of protection you desire for yourself, your children, and your property?In this article we’ll look at automobile, homeowner’s, life, and disability insurance coverage after divorce. In our discussion of automobile insurance, we’ll focus on private passenger cars, pickup trucks, and vans, but not commercial vehicles. And be sure to speak with your insurance agent about the risks and benefits associated with any changes to your premiums, deductibles, or basic policy coverage before making them.AUTOMOBILE InsuranceDuring the marriage, both spouses are typically listed on the automobile insurance policies for all of their vehicles. The divorce required that the property be divided and with a change in the certificate of title comes a change in policyholder. Your insurance company should have all of your updated contact information. If your ex-spouse is paying the premium on the policy and a payment is missed, for any reason, then you need to be notified immediately.Your insurance budget will have to cover a number of policies, including mandatory insurance for your personal vehicle. Your premiums will depend on the make, model, year, and condition of the vehicle, the distances you regularly drive, your gender, your driving record, and your credit history.Under the Fair Credit Reporting Act (FCRA) insurance companies have a “permissible purpose” for looking into a potential insured’s credit information. When problems leading up to the divorce included financial issues between the spouses, or even bankruptcy, then negative credit information and a low credit score can result in higher premiums.In Arizona, you need a certificate of insurance to register the vehicle in the state. The minimum coverage to operate your vehicle legally is bodily injury ($15,000 per person, $30,000 per accident) and property damage ($10,000 per accident). If you decide that you want greater coverage than the bare legal minimum, then your premiums will increase correspondingly.Bodily injury coverage pays for injuries that you cause to others in an accident, however, it doesn’t pay for your injuries. If you want to be covered for your injuries, then you’ll need to add medical payments coverage to your policy.Property damage coverage pays for the damage that you cause to other people’s vehicles or property, it doesn’t pay for the damage to your vehicle from the accident. If you want to be covered for damage to your vehicle, then you’ll need to add collision coverage to your policy.If you want your insurance company to pay for damage or loss to your vehicle because of theft, glass breakage, fire, violent weather, vandalism, hitting an animal, and the like, then you should consider adding comprehensive coverage to your policy.HOMEOWNER’S InsuranceIf there is a mortgage or deed of trust on your home, then you need sufficient property damage coverage to satisfy your lender’s minimum insurance requirements. If your home was totally destroyed, you would still be obligated to pay off that loan. Will your insurance policy cover your debt if such an event occurred? Your insurance may or may not cover you in the event of a flood. If you need flood insurance and your insurer doesn’t cover it, then you can get coverage through the National Flood Program (NFP) (call (800) 638-6620 for information).Your property damage coverage includes loss to the real property and your contents insurance covers loss to your personal property and possessions. If you have special collections, expensive jewelry, valuable antiques, or sophisticated computer equipment, then discuss additional contents coverage with your insurance agent and schedule these items to ensure adequate protection against loss.Personal liability insurance coverage protects you should someone be injured on your property as a result of your negligence or for which you become legally responsible. The insurer will cover your defense costs up to the agreed upon limit on the policy. If you have anyone tending to your landscaping or working to make repairs to your home, then there is a risk that he or she could be injured and you could be held liable. Also, discuss medical payments insurance with your insurance agent. With this coverage, a person injured on your premises will have some or all medical costs paid without regard to who was at fault for the injury. This type of coverage doesn’t extend to any intentional acts on your part, doesn’t cover your renter, doesn’t cover your home business, and doesn’t cover you and the family members living with you.When you compare insurance premiums, you’ll be asked questions about your home’s construction, the year it was built, the location of fire hydrants, and the distance to the nearest fire station, among other things. In Arizona’s rural areas the nearest fire station may be many miles away, which can mean increased premiums for rural homeowners.LIFE InsuranceDuring the marriage, couples often have life insurance policies that name the “surviving spouse” as the primary beneficiary, especially when they have children. A life insurance policy will pay out a specific amount to the beneficiary in the event of the insured’s death. Now that your divorce is final, a change in your beneficiary designation may be appropriate for all of your policies. Most insurers require the use of their official change of beneficiary designation form -- you should call your insurer and get that form mailed to you. As part of the settlement of your divorce, the party obligated to pay child support or spousal maintenance may also be required to maintain a life insurance policy to ensure that those payments continue even after a tragedy. If you are the one receiving the support, you may have concerns that the policy will lapse or that the beneficiary will be changed without your knowledge. If you have those concerns, then you might consider arranging to pay the premiums yourself.Term life insurance policies provide coverage for a specific length of time, usually for a one year period. There is no equity or cash value, so a term life policy is not an investment tool. As you get older, or as your health diminishes, the premium generally increases or the amount paid on death decreases. When it comes to cost savings, these policies may be a good option and easier on your insurance budget. The variable life insurance policy is a combination of insurance and investment, and investments always involve risk. Once the money is taken out to pay the premium, the remainder is invested. For this policy to work as an investment vehicle, more money is paid by the policyholder than is needed to cover the premiums. There is a guaranteed minimum payment on death under the insurance. There is a potential that the invested portion will also provide money on death, but as with any investment, there is no guaranteed rate of return. These policies tend to be much more costly than other life insurance products.The whole life insurance policy is a long term approach to insuring a life. The policy will provide coverage over the course of the insured’s lifetime at a set premium. Typically, the premium is paid over the duration of the policy, up until the death of the insured. If you are willing to stay with one insurance company for life, this may be an option for you.DISABILITY InsuranceIndividual disability insurance will cover your monthly income for a specific period if you are unable to work because you have an illness or have been injured. If you are paying spousal maintenance or child support, a disability insurance policy can cover expenses in the event you become disabled and cannot earn an income. It is not uncommon for people to fall into arrears on their support obligations because of illness or injury, so even a few months of disability coverage can make a big difference.COBRAIf one spouse is covered by the other spouse’s employer insurance program, then the divorce is a “qualifying event” that gives the non-employee spouse COBRA coverage for up to three years (36 months). Although this may represent a cost-savings compared to independent coverage, the premiums must still be paid or coverage will lapse.Your insurance decisions require a determination of your risk comfort level. Speak with your insurance agent about the risks and benefits associated with any changes to your existing policies. Make sure your agent has answered all of your questions. Your risk and budget concerns should be carefully addressed in your insurance policies, both new and existing.