It’s almost Valentine’s Day, which means millions of Americans are probably scrambling for enviable restaurant reservations, deciding on the perfect romantic gift, and, quite possibly, preparing to pop the big question.
According to HuffPost, roughly 6 million couples get engaged on February 14. Unfortunately, many of these fairytale V-Day proposals will not stand the test of time, as the American Psychological Association points out that between 40 to 50 percent of U.S. marriages end in divorce. So yeah, Valentine’s Day is kind of a double-edged sword.
Whether you’re getting ready to tie or un-tie the knot, there are significant insurance implications to consider, and determining how insurance will impact your marriage—or divorce—should rank very high on your personal finance checklist.
“Getting married or divorced can often be one of the most financially significant—and complicated—times in a person’s life,” says insurance expert Melanie Musson. “So whether you’re at the beginning or the end of a marriage you need to make sure you have your insurance needs in order.”
So whether you’re about to get down on one knee or sign on the dotted line to finalize a divorce, here’s what you need to know about how your insurance landscape is about to change.
The first thing a betrothed couple should consider is whether or not one individual’s health insurance can be used to cover a spouse as well. And if both engaged partners have health insurance through an employer, they need to do a cost analysis and determine which is the better, more financially beneficial policy, or whether or not it makes more sense to remain individually insured.
“If you are both working and your jobs come with health insurance, often your best option is to stay on your own policies through your respective employers. Typically, the employer pays a major portion of their employees’ health insurance and less of a portion of an added spouse or family,” says Musson. “You’ll need to examine the policies though because sometimes the insurance one spouse has access to is far superior to what the other spouse can get, and in that case, you may want to add your spouse.”
Musson adds a word of caution: There will be a limited time period for when someone can add a spouse to their health insurance policy, so make sure you don’t procrastinate.
“If you try to add after the special period is over, you’ll have to wait until the next enrollment period, which is often at the beginning of the calendar year or your company’s fiscal year,” says Musson.
For couples facing divorce, it’s important to understand that you will immediately be dropped from your spouse’s plan once the divorce is final.
“First, you can't cancel your insurance when you're getting a divorce. You must continue insuring your spouse until the day of the divorce,” says Chicago-based divorce lawyer Russell Knight. “On the day of the divorce, however, the insurance is automatically canceled. You have no option to continue insuring your spouse post-divorce. No policies allow it.”
The good news is that if you find yourself uninsured after a divorce you have a few options.
If you wish to continue being covered on your former spouse’s plan, you can pay it yourself through COBRA, a law that permits family members who lose group health insurance because of divorce or other life changes to buy the coverage for up to 36 months.
That being said, if your employer offers coverage, opting-in will most likely be a more affordable option than paying for COBRA. You can also purchase a plan directly from a health insurance exchange. Or, you can always purchase health insurance from a private company, but it's smart to shop around first.
When we’re single, life insurance is often an afterthought at best. No one is dependent upon our income and our financial lives are generally simpler affairs. When we join our financial lives with someone else, however, obtaining life insurance should become a priority.
“Ask yourself if your partner would be harmed financially if you were to pass away unexpectedly,” says Kathryn Casna, a licensed insurance agent specializing in life insurance. “If your partner depends on you for income, if you have a mortgage together, or if you plan to have children soon, for example, you may have new life insurance needs.”
According to Casna, life insurance generally falls under two main categories: term life insurance and whole life insurance. Payouts can cover ongoing, standard expenses such as rent, mortgages and car payments, as well as unexpected expenses such as debts and funeral costs.
Once you're married, you will want to review your financial obligations to determine which type of policy is best for you and your spouse. Because beneficiaries are named by the policyholder (the person who pays for the policy), it’s wise to confirm that you—and not someone else—is the one listed on the policy.
Conversely, one or both newlyweds may have come to the marriage with life insurance policies in place. If that’s the case Casna says both partners should figure out if their current coverage is enough for all their new needs and consider adding his or her spouse as a beneficiary.
“Life insurance payouts don't have to go through probate if you properly name your beneficiaries,” says Casne. “If you both need coverage, you can buy joint or survivorship life insurance. These are single policies that cover you both for less than two separate policies would cost.”
Conversely, if you're parting ways with your spouse you need to reevaluate your life insurance needs again. If you have children with your ex, for instance, you may wish to keep your policy to ensure your kids will still be taken care of if you pass away.
If your spouse was your beneficiary, it may be time to choose someone else. But keep in mind that children under 18 cannot legally receive life insurance payouts.
“If you name them beneficiaries, these funds may end up in your ex's pocket anyway if he or she is your child's legal guardian,” says Casna. “Instead, consider choosing a grandparent or trusted friend who will ensure your children receive the money when your children become adults, perhaps through a trust. And, of course, consider looping in your lawyer on all financial and insurance questions.”
Finally, according to Diabetes Life Insurance Solutions CEO Matt Schmidt, many people don't realize that they may need life insurance on an ex-spouse even after the marriage has been dissolved.
“In most situations, one ex-spouse will be the recipient of child support or alimony,” says Schmidt. “In the event that the ex-spouse passes away before the court-mandated support is completed, life insurance can be there to supplement any lost monies. Being the beneficiary of your ex-spouse’s life insurance policy is something the courts can also mandate if one is not cooperating.”
Renter’s and homeowner’s insurance
Both renter’s and homeowner’s insurance ensure the value of your household possessions against unexpected damages and injuries while also providing liability coverage. While the two are similar, there are differences; for instance, homeowner's insurance covers the structure itself while renter's insurance does not.
But when you’re newly married you probably have a few additional possessions that need a little extra insurance boost—most notably that expensive engagement ring now around your partner’s finger.
“You should get your engagement and wedding rings appraised, and you should contact your insurance agent to see if your homeowner’s policy offers a rider for special or expensive items like jewelry,” says Tim Surber, owner of Tim Surber State Farm Agency in Yakima, Washington. “You should also save your receipts and a copy of the appraisal, and make sure you share this information with your insurance agent to ensure you have sufficient coverage.”
Finally, says Surber, make sure you add your rings to your home inventory and then upload this inventory—along with copies of receipts—to a cloud-based storage site to make sure they’re easily accessible.
If you’re just moving in with your spouse, combining your coverage by adding your spouse onto your existing policy—or vice versa—is usually the most affordable solution. Keep in mind that you will need to extend the coverage to add your spouse’s possessions to what is already being covered.
Most homeowner's policies contain language that automatically includes a spouse. However, it is wise to double-check just in case.
If you find yourself moving out of a home you shared with your former spouse, Surber recommends keeping both names on the policy until the divorce is finalized, but also discuss necessary adjustments that will need to be made to the policy agreement following the divorce.
“For homeowners and renter’s insurance, update the policy to reflect who—if either of you—will stay at the marital residence,” says Surber. “The person moving out will need to purchase a new homeowner’s or renter’s policy for their new residence.”
Getting married and combining auto insurance policies is typically a financial boon for newlyweds. For starters, married policyholders pay, on average, less than single drivers since insurance companies have found that they are statistically safer behind the wheel. What’s more, most companies will give a discount on policies that insure multiple vehicles.
However, there are some nuanced points to consider.
“When you join households you absolutely must notify your auto insurance company and you’ll need to name your new spouse as a driver on the policy,” says Musson. “Also, if your spouse has a terrible driving record and could make your rates skyrocket, you’ll have to exclude them from your policy—and ensure they don’t drive your car. Either way, the insurance company needs to know.”
In the advent of a divorce you need to notify your insurance company of the change, and if you share a policy under your name it is best to remove your ex-spouse. This will protect you from liability if he or she gets into an accident or gets sued. And since your rates will probably increase, this is probably a good time to shop around for a new policy, just in case, there’s something more affordable on the market.
“I suggest you get three quotes for new home and auto insurance coverage,” says certified divorce financial analyst Christina Lynn. “You want three quotes to find an agent you trust, and to get the best deal. Now is a great time to do this, because you may be able to save some money, and you need to make sure the policies are in your name only from now on.”