Uncoupling Insurance Policies When a Marriage Breaks Up

Nearly 40% of marriages end in divorce, so inevitably we find ourselves helping clients understand the personal-insurance ramifications of a breakup. And while we cannot make an upsetting experience any less so, we can make sure you won’t have the additional worry of whether you will remain properly protected from life’s other risks as a result.

This overview answers commonly asked questions from clients who have been through a divorce, so you will understand what to expect and how to best manage the process should you find yourself in a similar position. Above all, though, we encourage you to be fully transparent with your insurance broker about the circumstances—particularly about any changes in your living situation—so they can provide the appropriate assistance.

1. When should we start the process of separating policies?
Generally, there are two triggers that spark the need for new coverage:

  • You or your spouse moves into a separate home (either purchased or rented)
  • You and your spouse begin to separate assets or acquire new ones (such as a new home)

In either case, be sure to call your insurance broker so they can begin to separate and add policies as needed based on your evolving insurable interest in the assets.

2. Which of our policies will be impacted?
Typically, you and your spouse will need to separate your homeowner’s, automobile and umbrella liability policies. If you co-own collections such as art and jewelry, the related policies will be impacted as well, depending on how the items are divided. Finally, you may want to change the beneficiary of your life insurance policy or acquire a new policy if child support and alimony become part of the settlement.

3. What exactly does the policy-separating process look like?
Broadly speaking, changes in your program follow the pace of the ongoing negotiations. At first, you will likely need to acquire a new homeowner’s or renter’s policy even before the divorce is finalized. Then, as assets (autos, vacation homes and art, etc.) continue to be divvied up, your broker will obtain the appropriate new programs for relevant stakeholders.

In fact, collections are often among the last elements considered, as they bring a particular set of complications. For instance, one spouse may possess a piece that is in fact jointly owned. Rest assured, you and your property will be fully covered throughout the process as long as you keep your insurance professional in the loop.

4. How might child support or alimony impact future coverage?
Sometimes, the final divorce settlement requires one spouse to maintain a life insurance policy that names the ex-spouse as a beneficiary in order to cover child support or alimony in the case of a death. If you are concerned that your ex-spouse will fail to keep that policy active, you can have them create one in which you are named as an irrevocable beneficiary, giving you control over any changes. Another suggestion: the spouse receiving alimony or child support can take out a life insurance policy on their ex-spouse and even pay the premiums to alleviate any fears.

5. How will children be covered under separate policies?
If you have children, you and your co-parents will likely have to list them on each of your automobile policies. It is important that each co-parent’s underlying liability limits are sufficient to withstand a lawsuit. Otherwise, there could be a significant coverage gap that would have to be paid out of pocket.

6. Can one spouse make changes to policies without the other’s consent?
It is true that, for married couples, carriers require only one signature to cancel a policy. Once a separation occurs, your broker is legally obliged to obtain signatures from both parties before making any changes.

7. If one spouse has handled the insurance decisions to this point, how can the other learn everything necessary to move forward alone?
After a separation, we bring the less-informed spouse up to speed so they can make educated decisions about their future security. The process will go much more smoothly when both spouses can put animosity aside and work with the same broker during this time. Knowing every side of the arrangement, they can make sure nothing falls through the cracks.

In an emotional situation like a divorce, it's important to step back and consider carefully how to manage the transition from a couple to two individuals. Making insurance decisions may help ensure that all parties are properly protected. Our experience has involved spouses in the midst of a conscious uncoupling to others who can’t speak to one another. We can assure you that whatever the case, throughout it all, we will remain a sensitive resource for risk management during such a trying time.