What is Divorce Insurance & Do I Need It?

Money is one of the most common reasons for couples to divorce. As a result, it's not surprising that money can be a barrier to divorce. Now, a North Carolina company claims to have devised a novel way to alleviate some of the financial strain of a divorce — but only after the divorce is finalized.

Safeguard Guaranty Corp. bills itself as the first and only provider of divorce insurance in the world. Divorcees can receive a lump sum payment to cover expenses such as attorney's fees, court costs, arbitration fees, and apartment rent under a WedLock Divorce Insurance policy. Someone going through a divorce can incur expenses ranging from $15,000 to $40,000.

10 Things to Know About Divorce Insurance

If you and your partner are thinking about getting divorce insurance, here are a few things you should know about what divorce insurance is and what it can help cover:

  1. Divorce insurance is also referred to as casualty insurance

WedLock Divorce Insurance is a type of casualty insurance that pays out after the divorce is finalized. Once the necessary fees are paid, it is intended to help keep divorced couples out of financial ruin.

WedLock's creator, John Logan, went through his own financial difficulties during a divorce that he claims drained him dry in 2001. "After my experience," Logan says, "I wondered why there wasn't something out there to help people going through it."

Given that people buy auto insurance, home insurance, and life insurance, Logan believes that buying divorce insurance makes sense. Others, however, are skeptical of the financial wisdom of purchasing divorce policies.

  1. It’s not a prenuptial agreement

A prenuptial agreement is a legal document that specifies how assets will be divided in the event of a divorce. Meanwhile, insurance alleviates financial hardships caused by divorce. A policy, however, is not intended to replace a prenuptial agreement. In fact, Logan hopes that divorce insurance will eventually be included in prenups.

  1. The facts say a lot

Approximately 44 percent of American marriages end in divorce. The majority of divorces occur within the first eight years of marriage. "The truth is that divorce is real and that it is occurring. "I never expected it to happen to me," Logan says.

Furthermore, many people who file for divorce are impoverished. According to studies, the average divorcee loses more than 70% of his or her net worth. "With so many odds stacked against you," Logan says, "it only makes sense to protect yourself and have peace of mind."

  1. It costs to have peace of mind

You can purchase one unit of WedLock insurance worth $1,250 for $15.99 per month. If you purchase ten insurance policies, you will receive $12,500 in coverage.

Each unit increases in value by $250 after four years of ownership. As a result, if a person purchased ten units of coverage and divorced after ten years of marriage, the policyholder would have paid $19,188 for the insurance and received a $27,500 payout.

Logan will not say how many WedLock policies have been purchased, but he will say that some husbands and wives are spending up to $1,000 per month on coverage.

Lili Vasileff, a certified divorce financial planner in Greenwich, Conn., does not think WedLock insurance is a good investment.

"It's an intriguing idea," Vasileff says, "but it's an untested product." "What happens if the company cannot meet its contractual obligations?" Investing that money in something else, such as a trust, is far more (worthwhile)."

  1. Anybody can buy it.

Divorce insurance is typically purchased by a couple to protect themselves. Logan advises against buying it for one half of the couple solely for himself or herself. Relatives of a married person can also purchase policies.

Mimi Daniel, a relationship counselor in Baltimore, does not think so. "You don't want to enter a marriage with secrets from your spouse," Daniel says. "It is also not a good idea for parents to intrude on their child's relationship by purchasing a policy."

  1. It doesn’t discriminate.

If you're in your second or third marriage, there's no need to be concerned about the cost of a policy. Regardless of the marriage, each unit of coverage costs $15.99 per month. Logan believes that this is what makes the insurance appealing. Logan explains, "We wanted to make sure that this was affordable for everyone."

  1. Decide whether it’s right for you.

"Talking about it is the best way to decide," says Daniel, the relationship counselor.

According to Daniel, couples should make lists of characteristics that they believe contribute to a marriage's longevity as well as those that contribute to its demise. The couple should then decide what solutions they would pursue if a problem arose. Regardless of the situation, she does not recommend purchasing a new insurance policy.

"It implies that divorce is an option without even attempting it," Daniel says.

Logan of WedLock admits that he does not expect newlyweds in their first marriage to invest in a policy. "This is really more for people in their second marriage who are aware that divorce is a possibility," he says.

When deciding whether to purchase a policy, the WedLock website suggests taking your financial situation and the cost of living into account. Divorce-related costs can range from $15,000 to $20,000 or more, depending on where you live. The WedLock website includes a divorce cost calculator to assist in determining those costs. The website also includes a calculator for calculating the likelihood of divorce (with a 13-point margin of error).

  1. There’s a four-year waiting period.

Couples who want to receive a WedLock insurance payout just two years after their wedding are out of luck. To receive a payout, a person must have been a policyholder for at least four years. If a couple is divorcing at the time of purchase, WedLock will not owe the policyholder anything.

  1. Four years too long? Buy a premium rider.

If you're concerned that your marriage will end before the four-year waiting period is up, you can purchase a premium rider for $30 per month per unit of insurance. A policyholder can obtain a 50% payout in the event of a legal separation by purchasing a premium rider. If the couple divorces, the remaining half can be claimed.

  1. You can’t file too soon.

WedLock insurance will not help you if you need a quick payout during divorce proceedings. After the divorce is finalized, policyholders must file a claim with the company.

Barbara King, a family and marital law attorney in Albany, New York, points out that the WedLock setup is flawed due to this requirement.

"People need the money during the divorce," King says. "If I am in a car accident, the insurance company will not pay me until the car is repaired and (the court case) is over." They hand it over to me during the process. What good is divorce insurance if I don't get my money until the divorce is finalized?"