Photo (cc) by CarlosMendozaPhoto
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.