Divorce and Insurance
During the course of your divorce proceedings and the negotiations that go with it, one topic that is often overlooked or taken for granted is insurance. It seems to be one of those things that people don't think about until they need it. The lack of adequate insurance for yourself, your spouse, or your children can lead to financial ruin. When you separate you should take a look at all your insurance policies including:
Health insurance coverage is something that must be dealt with in the final divorce agreement. Who pays for what should be stated clearly so that there is no confusion. If there are children involved, you and your spouse must come to an agreement on who will carry coverage for them. Usually whoever had the coverage for the children before the divorce would continue that coverage. You must also decide who is responsible for unreimbursed medical expenses for the children. A general rule of thumb is that each parent is responsible for a percentage of these expenses. The percentage is usually based on the percentage of each parent's income to the total of his or her combined incomes at the time the divorce agreement is finalized. For instance if parent 'A' earns $30,000 and parent 'B' earns $20,000 their combined income is $50,000. The percentage for parent 'A' would be 60% ($30,000 divided by $50,000) while the percentage for parent 'B' would be 40% ($20,000 divided by $50,000).
COBRA - If you had your medical coverage through your spouse's employer-sponsored health plan before you became legally separated or divorced, you may be entitled to continued coverage under the COBRA law.
In 1985, Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA), which provides for the continuation of group health insurance that otherwise would be terminated. It contains provisions giving certain former employees, retirees, spouses and dependent children the right to temporarily continue their health coverage at group rates. The act applies to employers with 20 or more employees. Under this act, any person who would lose employer-based coverage because of divorce can choose to purchase continued coverage for up to 36 months.
As you can see, there are guidelines and restrictions to the COBRA law. Your attorney can advise you if you qualify for coverage. If you do qualify, the coverage is not automatic. You need to contact the employer within 60 days of the divorce and complete the necessary paperwork. The employer is not responsible for the payment of your premiums. That is the responsibility of you or your ex-spouse, depending upon the terms of your divorce settlement.
For the unemployed or those who don't have health coverage through their employer, obtaining insurance through the health insurance exchanges created by the Affordable Care Act might be the best option. While there's a limited general-enrollment period for health insurance under the health insurance exchanges you can enroll at other times of the year during a special enrollment period if you've experienced a qualifying life event, such as a divorce, marriage or birth of a child.
Most people already have a life insurance policy of some sort. If you do, you should carefully review them to insure that they are sufficient for your new needs. You may want to change your beneficiary as well. Check with your attorney before making any changes to your policies, as some states will not allow changes to be made during divorce proceedings.
If you now provide the majority of support for any dependants you may need to increase your policy. You may also want your spouse to carry coverage if you depend on their income for child support and/or alimony. This is an issue that should be clearly stated in your separation or divorce agreement.
When determining how much life insurance you will need you should take into consideration your current and future financial needs. Do you have children that will be attending college? Do you have large debts that you do not want your survivors saddled with?
Most people don't think about becoming disabled. However, some statistics show that if you are under the age of 65 you are twice as likely to become disabled than you are to die.
Disability insurance pays the insured a monthly benefit in the event that the insured person is disabled and unable to work. The amount of the benefit can be either a percentage of the insured's income or a preset dollar amount.
This type of insurance is important if alimony and or child support payments are ordered, especially if the payor has no other source of income to make those payments.
Many people believe that Social Security will provide coverage if they become disabled. Remember that the Social Security Administration is a part of the Federal Government. You will be dealing with a Federal bureaucracy when you file a claim with them. Social Security has very specific guidelines that it follows with varying benefit levels for disability claims. The amount you would receive from Social Security is based upon your earnings and your age at the time of disability.
The monthly cash benefit for a worker that was disabled in 1998 had a maximum of $1,587.00 per month. The corresponding maximum for a worker with a family is $2,380. Remember those are the MAXIMUM payments. In 1997 the average benefit paid to a disabled worker was $708. The average payment to a worker with dependants was $1,132.
Before purchasing disability insurance your should consider what your need would be in the event you became disabled. Look at your budget. What expenses do you have in addition to normal living expenses? What if any of these would not apply if you were disabled, such as commuting costs? What expenses would increase? Do you have any other sources of income, such as investment income that you could use? Speak to an insurance specialist who will be able to help determine specifically what your needs are.
Homeowner's/Renter's insurance covers the value of the items in your residence against damage and/or theft. There are certain limitations to these policies so it is wise when you move into a new place to do an inventory of your possessions in order to determine your needs. Some items are only covered to a certain amount in standard policies. If you have items of value such as antiques, jewelry or collectibles you may need what is called a "floater" to cover these items. Every policy is different so speak to your insurance agent for a policy that will meet your specific needs.
Auto insurance covers damage to your vehicle and damage that it may cause to another person's property. Auto insurance is regulated by the state in which you live so every state is different. When you separate, inform your insurance agent. Remember, if you and your spouse were on one policy you may need to get separate policies if not living in the same residence. Additionally, your separation agreement should clearly state who is responsible to pay auto insurance premiums.
Additional Insurance Resources:Directory of Attorneys Directory of Mediators Directory of Divorce Services Estate Planning and Divorce in Massachusetts Divorce FAQ's Featured Articles
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