Should You Say “I Do” to Divorce Insurance?

A North Carolina insurance company is offering a new product called WedLock, which aims to defray the costs of a divorce.

First there was wedding insurance: we’ve explained it several times in the past, most recently a couple of months ago. That’s insurance that’s supposed to protect your wedding day – money you’d receive to reimburse you for lost deposits and other expenses in the event your wedding is canceled due to a death in the family, dangerous weather, military service or other unforeseen circumstances.

Now, apparently for the first time, there’s divorce insurance.

A North Carolina insurance startup called SafeGuard Guaranty Corporation has begun selling policies under the name WedLock (shouldn’t that be wed-unlock?). It charges $16 a month for a single “unit” of coverage, which equals $1,250. You can buy additional units for $16 a month – and keep going right up to 200 units, or $250,000 of coverage. The company adds $250 of coverage every year per unit.

What do you get for that? A cash benefit that will ease the financial burden of your divorce. According to divorce360, attorney’s fees alone can run as high as $45,000 for contentious divorces in urban areas like Los Angeles. With the divorce rate between 40 and 50 percent, SafeGuard might feel like a safe bet.

Cashing in your policy is as simple as mailing your divorce documents to SafeGuard. But lest you think you can quickly take out a policy as your marriage is hitting the rocks, note this huge caveat: Policies don’t mature until 48 months after their effective date. (If you want to include a rider for what they call an accelerated maturity, you can reduce that time period to 36 months – but that will hike your monthly premium from $16 to $30 per unit)

The policies aren’t backed by any state insurance or other government fund – only by the company that’s actually doing the underwriting the policies for Safeguard, Prime Insurance. If Prime goes down the tubes, your premiums go with them.

Wedding insurance vs. divorce insurance

While wedding insurance may be overkill in terms of cost vs. benefit, depending on the parties involved, it could be justified. It only costs a couple of hundred bucks and protects what could add up to thousands in lost deposits. And it only applies to one special day.

I’m less sanguine regarding divorce insurance. This type of insurance seems fundamentally flawed both financially and emotionally.

Financially, you’re paying $192 every year for $1,250 of benefit – and you have to pay four year’s worth, or $768, before you’re even eligible to collect. Would investing that money be more rewarding? Let’s do a comparison.

According to this financial calculator, if you invest $192 every year for five years and earn 10 percent compounded monthly, you’ll end up with – surprise! – about $1,250. That’s the same amount WedLock promises as your starting benefit. Granted, earning 10 percent is no simple feat. But it’s certainly possible. Witness our online stock portfolio.

Now let’s consider a Wedlock policy. If you pay WedLock the same $192 every year for five years, upon divorce you’ll get $2,250 ($1,250 plus 4 years of the extra $250). That’s a lot more than the $1,250 you’d get saving on your own. But you have to get divorced to get it.

If you’re saving on your own, you can stop whenever you want. If you’re paying for a WedLock policy, best you keep the premiums up, or your policy will lapse and you’ll end up with nothing.

Speaking of ending up with nothing, what if you get divorced in, say, two years? According to company CEO John Logan, you can purchase a “return of premium rider” for an extra $2 per unit that will refund any premiums you’ve paid in – less the state tax paid by the underwriter – if you get divorced in less than four years.

Now let’s consider the emotional angle of this type of insurance. When I talked to John Logan, here’s what he said about his new invention:

“We know we can’t build a dam and stop divorce from happening. But we’d at least like to put our finger in the dike to stop the crack in the foundation of marriage from getting bigger.”

Mixed metaphors aside, this seems exceedingly odd language coming from a company selling a product whose only value springs from divorce. Imagine you buy 10 units, pay premiums of $1,920/year, year after year, creating a larger and larger potential benefit. But the only way to access it is get divorced.

You may not be willing to kill your spouse for a $100,000 life insurance benefit, but how much of a benefit would it take for you to divorce your spouse? $50,000? $100,000? $200,000? Every couple would have their price. After all, you could always collect the dough and get remarried.

So if everyone gets divorce insurance, then ultimately wouldn’t everyone – except perhaps the super-rich – get divorced just to get their money?

Of course, most people probably won’t get that close. Could you approach your spouse with, “Say, sweetheart, take a look at this website, doesn’t this look like a good idea?” Nobody suggesting divorce insurance to their spouse is going to be married for four more years. Nor is anyone who keeps that kind of financial secret from their spouse.

I asked John if he’s ever been divorced. He has – once. He added, however, that he’s currently engaged and looking forward to his second time out. Is he buying divorce insurance? Nope. As it happens, in North Carolina, where both John and WedLock reside, state insurance regulations make his product prohibitively expensive.

Stacy Johnson

It's not the usual blah, blah, blah

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  • Stacy,

    Thanks for the great article. However, I’d like to clarify a few things for your readers. Let’s start with this:

    “You may not be willing to kill your spouse for a $100,000 life insurance benefit, but how much of a benefit would it take for you to divorce your spouse? $50,000? $100,000? $200,000? Every couple would have their price. After all, you could always collect the dough and get remarried.

    So if everyone gets divorce insurance, then ultimately wouldn’t everyone – except perhaps the super-rich – get divorced just to get their money?”

    We doubt that most people would proactively plan over many years for divorce in order to defraud an insurance company. There will always be some criminal element that tries to game the system just like people who fake car accidents or car theft, and like the auto insurance industry, if that happens enough, premiums will go up for future policy holders. However, for most, divorce is a painful and expensive experience that comes at them like a liability lawsuit in which they’re forced to defend themselves at their own expense.

    The facts are that just legal fees for divorce range from $15K to $35K across the US even in an amicable divorce. Throw in a custody battle or a protracted equity distribution fight and ask any family law attorney, the costs can easily reach $100,000 per spouse in no time. The reality is that on the average, people lose 77% of their net worth as a result of divorce (Jay Zagorsky, National Longitudinal Survey of Youth study findings, Journal of Sociology, Ohio State ‘s Center for Human Resource Research) and as a result, 44% of American families go below the poverty line after divorce (Julia A. Heath and B. F. Kiker, “Determinants of Spells of Poverty Following Divorce” Review of Social Economy, 50). Those are scary numbers. Women are hit the hardest of course with only about 23% of court mandated child support is ever paid as ordered, divorce is now the number one contributing factor to bankruptcy and poverty among women worldwide.

    In truth, most people won’t have the budget to buy enough coverage to offset all their divorce related expenses, so the idea of a huge windfall (even in a planned event) is farfetched, but if we can keep even one child out of a life of poverty for even one day, all the monetary benefits pale in comparison.

    Now let’s take a closer look at your investment comparison. You yourself point out that “Granted, earning 10 percent is no simple feat. But it’s certainly possible.”

    We agree it’s very possible to achieve a 10% return on a diversified portfolio IF (and that’s a big “if”) you know what you’re doing, but you have to admit that hoards of VERY savvy investors lost their shirts over the last few years. And, even you’ll have to agree that the last decade for stocks has been the worst since the inception of the stock market exchange in 1880. On average, stocks on the NYSE went down 1/2 percent per year between 1999 and 2009 and the S&P lost 3.3% during the same time period. There is always a chance that investment in the stock market will actually lose money over any given long term period. Our benefits aren’t impacted by any economic factor.

    More importantly, any investment gain during marriage is considered a marital asset and is split up at the whim of the Family Law judicial system, which is not exactly well known for its objectivity. WedLock Divorce Insurance benefits have no accrued cash value during the marriage. There is overwhelming legal precedent set in most states regarding benefits paid from a disability or term life insurance policy (paid for with marital assets) after the divorce is finalized that “absent any special designation to the contrary by the insured, all benefits go only to the insured or their beneficiary”. In fact, there was recently a Michigan Supreme court ruling with regard to a Whole Life policy that ruled the same way. Since a claim for Divorce Insurance can only be filed AFTER the divorce is finalized, we’ll gladly argue in court that Divorce Insurance should be treated the same way.

    From an emotional standpoint, we can agree that Divorce Insurance is not a romantic subject. Neither are prenuptial agreements, but I’m sure you’ll agree that there are circumstances where a prenuptial agreement should almost be mandatory (when one spouse has significant assets, a business, a large inheritance pending or children from another relationship) even in a first marriage. Divorce Insurance can be an integral part of any prenup.

    Again, the reality is that there may be those visible cracks in anyone’s marriage foundation that become the elephant in the room. Everyone sees them but no one wants to mention them. They could be many things, infidelity for example. There is a whole list of reasons why one spouse or both might conclude that WedLock Divorce Insurance is a really good idea even if they get over some big bumps in their marriage and makes it no secret that they are buying it.

    For anyone who’s ever been though the devastating financial disaster of divorce WedLock should be a no-brainer, and that kitchen table discussion with your soon-to-be spouse takes on a completely different tone.

    Look at the odds of ANY calamity happening to you.

    1 in 300 that your house will burn down in any given year. A little higher for flood damage over the life of your mortgage – 1 in 60. And Life Insurance actuaries using standard mortality tables peg the odds of you dying over any 20 years in your lifetime at 8 out of 1000 (or 1 in 125). Disability comes in even more frequent at 1 in 80 but I’m sure you’ll agree that too few people are smart enough to insure their income (which is what disability insurance actually does) even though their income is what pays for everything else.

    Now let’s look at the odds of divorce.

    The odds that you’ll divorce if you’re on your first marriage are about 1 out of 3 (32%). And don’t feel safe just because you reached past that 8 year mark by which most 1st marriages fail, because there’s a big spike right around year 20. Look at Al and Tipper Gore if you think you’re immune. And for people already on their second marriage? Chances are high they already know the devastation that divorce can cause but their odds of marriage failure are 2 out of 3 (67%). Third marriages are almost 3 out of 4 (72% fail). The reality is that the risk of divorce is more real and tangible than many other catastrophes that we already think nothing of paying insurance premiums for over decades with a prayer that we never need it. And just like auto accidents, most people never see it coming before it’s too late.

    Speaking of auto insurance, I’ve paid in more than $19,000 in car insurance over just the past decade. And the only way I’ll ever see that money back is to total my car, yet even if it wasn’t required I’d buy it (and you’d recommend the same thing). Why? Because the risk to my wallet is too great not to have it. For many people it’s the same thing.

    Everyone knows someone who needs WedLock Divorce Insurance, if it’s not you, than forward this post to someone you know who does.

    John Logan
    CEO SafeGuard Guaranty

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