By FPA member, Chris Bertram
Last Updated: June 10, 2013
Divorce is a life-changing event that can have a significant effect on one’s personal insurance coverage. With many couples dividing household duties, it is common for one spouse to know more about existing insurance or financial issues than the other. If your client is preparing for, or currently going through, a divorce and has not been the primary person to deal with family insurance matters, it’s important for them to acquaint themselves with their personal insurance policies. Their insurance advisor should be notified of a pending divorce as soon as possible to prevent policy changes that could adversely affect them.
Here are answers to some commonly asked questions about how divorce affects your client’s automobile and home insurance. While these responses may provide some insights, clients should discuss their individual situations with their insurance advisors and attorneys.
Can I take my spouse off my auto policy?
Until your divorce is final, your insurance advisor should not remove anyone's name or vehicle from the policy without the written consent of that party.
If I am the titled owner of one vehicle, and my spouse the other, why can't we get separate insurance?
You may be able to, but you should consult your attorney. State "joint property" laws may render the registration immaterial. If either vehicle is considered "joint property,” you both should maintain one policy until the divorce is final and the property is separately owned. Your attorney can help you with this issue.
The bills go to my spouse. If my spouse doesn't pay them, will my insurance cancel, too?
Yes. That's why it's important that your insurance advisor knows how to reach you—you are still responsible for keeping your bills up-to-date. If payment of bills is a problem, discuss this with your attorney. They may be able to arrange a payment plan.
My spouse isn't reimbursing me for his/her share of the insurance. Why should I pay my spouse’s part?
You shouldn't, but beware of "cutting off your nose to spite your face.” Because your name is on the policy, you are still responsible for timely and full payment. Talk to your attorney about balancing out the financial details. The important thing is that you keep your coverage in force. The only way to do that is to pay the premium that you are billed.
I have moved out of the house we shared. Are my belongings still covered? Do I need a new homeowners' policy?
It depends. Certain situations could result in a lack of coverage for you under existing policies. It is important that you contact your insurance advisor to discuss your individual situation.
I got the house in my divorce settlement. Do I need to change the deed and homeowners policy?
The people named on the deed are insured under the homeowner's policy. If you get the home in your divorce settlement, you'll need to be listed on the deed. (Since real estate is usually one of the biggest discussions during a divorce settlement, your lawyer should be able to help you on this matter.) If you add or remove any names from the deed, contact your insurance company to update the policy or to take out a new policy. A few other things to keep in mind:
- Make sure you know who is responsible for paying the premium on your policy, especially if you will continue to share ownership of the home.
- Update your property inventory. Remove any items from the inventory that your ex-spouse moved out of the home.
- Cancel any endorsements or "floaters" on your policy for big-ticket items that your spouse received in the settlement.
How will my auto insurance be affected by divorce?
More often than not, whoever gets the car is responsible for insuring the car. You may no longer qualify for multiple car discounts and reduced rates for married couples. However, if your ex-spouse had a poor driving record, you may do better on your own anyway.
There are always exceptions. For example, if there are children involved, the custodial parent may be burdened with additional transportation costs. The custodial parent may be required to drive more miles per year, or maintain a larger and/or newer car to accommodate the needs and safety of the children. In such cases, the non-custodial parent may be required to pay all or a portion of the custodial parent's auto insurance costs.
There are several things you can do to manage your auto insurance costs. First, shop around. The insurer you used while married may not offer the best rates to single people in your risk category. Second, determine whether you need the same level of coverage as you did when you married. Presumably, the coverage amounts you chose when married were based, in part, on the assets you sought to protect. You may have different assets now and different coverage needs. Third, decide whether you can raise your deductibles and/or eliminate comprehensive and collision coverage on the car you took from the marriage.
Depending on how your client’s assets are changing as a result of the divorce, they also may want to look into a Personal Excess Liability Policy (umbrella). This type of coverage can help protect against catastrophic liability losses by providing extra coverage above existing automobile and homeowners liability limits.
FPA member, Chris Bertram, is Sales and Risk Consultant at Marsh Private Client Services in Philadelphia, PA. He serves as Membership Director for the Philadelphia Tri-State Area Financial Planning Association.