By Amy Shepard, CFP
Reviewing your insurance coverages during and after divorce is one of many things to tackle as you transition to your next life chapter. Below is a brief list of some of the important insurance considerations to evaluate so that you can make sure your insurance needs are aligned with your goals.
Amy Shepard
Health Insurance
For many folks going through a divorce, this is often addressed before the divorce is finalized. But not always. If you’re both working and both on your own health insurance, there’s likely not much review or change needed. But if you were on a former spouse’s health insurance, this becomes an important topic to explore. I’ve seen instances where health insurance is addressed within the separation proceedings – either agreeing to keep one spouse on the other’s coverage for a period of time or one spouse financially covering the premium for the other for a period of time.
If health insurance wasn’t addressed during the divorce process, then it’s a top priority to tackle to make sure you’re covered. For those who are working, evaluating your employer coverage is a great first step. Even if it’s not open enrollment, there are “qualifying events” that let you change coverage any time during the year – losing health insurance due to a divorce is a qualifying event.
If you don’t have employer coverage available, healthcare.gov is the next most common option to explore. This approach is often referred to as the “healthcare marketplace” or “affordable care act coverage”. You can browse a variety of plans as well as check your eligibility for a tax credit that can reduce your monthly premiums.
For those who have been out of the workforce for a while, looking for a job in a field you enjoy may provide two benefits – first allowing you to do work you enjoy, and second, providing access to health insurance. There are lots of companies that offer health benefits to part-time employees.
COBRA is also a consideration if available – it can allow you to continue existing coverage on an ex-spouses group plan after a divorce for up to 36 months. The biggest challenge with COBRA is often the cost as you have to pay the full premium; the employer no longer chips in.
Another option that has been growing in popularity over the last several years is using a health share. This is not traditional insurance, but it does work similarly. When you are part of a healthshare, you pay a monthly cost to participate. Your monthly cost is used to cover administrative expenses as well as cover the medical costs of other members. Health shares are generally good options for those who are fairly healthy and don’t have any pre-existing or chronic conditions. I think of health shares as “catastrophe coverage” – it’s there if you have a major unexpected health event but is not ideal if you need to use it frequently.
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Life Insurance
For many married couples, life insurance is used to cover your financial contribution to the relationship if you were to pass away unexpectedly. Upon divorce, your life and financial goals have likely changed which means it’s important to review your life insurance needs. It could be as simple as keeping existing policies but updating the beneficiary to no longer be your ex-spouse. It could also be more complicated – I’ve seen divorce proceedings that required one or both parties to maintain life insurance on the other for a period of time for the financial cushion it provides. The most crucial point here is to review your life insurance to ensure it aligns with your goals.
Long-Term Disability Insurance
This type of insurance is important in many stages of life and doesn’t typically get enough attention! After a divorce, evaluating your long-term disability coverage is another important thing to tackle to make sure your coverage aligns with your goals. If you have many working years ahead of you, having enough long-term disability insurance is important as it protects your greatest asset – your ability to earn an income. Without income, you can’t make progress on any financial goals, so this is critically important. For many folks, a divorce can alter their timeline on life events such as retirement, often delaying them. If retirement is pushed out because of the need to work and save longer, adequate long-term disability coverage should be a top priority.
Property, Auto, Umbrella, and Other Insurance
These policies should also be reviewed and updated to match your new situation. It can involve removing an ex’s vehicle from the auto policy, getting rid of personal property riders that insured your wedding bands, removing a name from the home owner’s policy so that whoever moved out is no longer listed, etc.
While insurance considerations are rarely an exciting topic to discuss, they are certainly important! Taking the time to review and update your insurance policies after a divorce is a critical step in making sure that you are adequately protected, and your policies match your goals.
About the author: Amy Shepard
Amy Shepard, CFP®, RMA®, BFA™, MBA is a financial planner at Sensible Money. She has been working with clients since 2013 and loves helping them create and implement a financial plan so they can achieve their life goals. She is involved in the CFP Boards Mentor Program and previously served on the board of the FPA of Greater Phoenix. Outside of work she enjoys spending time with her husband and kids – they have a goal to take a family picture in all 50 states!