Insurance Blog

Securing Your Future with Insurance After Divorce

Individuals facing a divorce and an uncertain future for themselves and their family need to make some important financial decisions. A crucial part of any financial plan is to plan for risk and worst-case scenarios. Therefore looking at two important types of insurance that every person in the workforce should carry is crucial. These are life insurance and disability insurance.  

Life Insurance Concerns Following Divorce 

Life insurance will pay your survivors a pre-set amount of money in the case of your death. This is extremely important to carry if you have a family. If you have become the main source of income in the family due to divorce, you may need additional life insurance coverage. If you pay child support, you should establish a life insurance policy which will continue those payments if you were to die. If your former spouse pays child support, consider making such a policy a part of the divorce agreement.  

Be sure to change the beneficiary of your life insurance policy following the divorce. Even if you have a policy in place to continue your child support payments, do not have your ex-spouse as the beneficiary. It is also important to remember to review all other beneficiary designations following divorce. Most people prefer to remove former spouses as beneficiaries but it can easily be overlooked especially with older policies.  

 

 

Understanding Disability Insurance 

Disability insurance will provide a monthly income for you if you become unable to work due to illness or injury. The insurer that you pay your premium to each month will pay out disability benefits if you need them. Surprisingly those between the ages of 25 and 55 are at double the risk of becoming disabled compared to dying, however fewer of them carry disability insurance than life insurance. Disability insurance is a very necessary type of coverage for most people of that age group to carry because they do not have the financial security to live for long periods of time without an income. This is especially true following divorce. 

There are different types of disability insurance policies. How a policy defines a disability affects the price and allure of it. If an insurance policy has a broad scope it will allow for disability payments to be paid as long as the individual cannot perform usual tasks of his or her job. This is the more expensive type of disability insurance. The cheaper kind limits the definition of disabled, so that the policyholder must not be able to perform any type of gainful employment in order to receive benefits.  

When purchasing disability insurance it is important to consider your monthly expenses in order to figure out how much coverage you will need. Tally the basics and then consider additional expenses that may increase due to a disability. Subtract any investment income, disability benefits from your employer and other income not affected by your ability to work. This will tell you how much individual disability insurance you need to purchase. Insurers usually allow you to purchase coverage for 60 to 70 percent of your regular gross income, as an incentive to return to work. However, if you have paid for your premiums with after-tax dollars, you will be receiving your benefits tax-free.  

If you consider Social Security to be your own method of disability insurance, you might want to reconsider. It is very hard to qualify for those benefits. Typically you must have a fatal illness or be completed incapacitated so that you can do no work of any kind for a minimum of 1 year. It also takes approximately 6 months to receive any payments.  

If you are under the age of 65, you have twice the chance of suffering a disability that will last three months or more, than you are of dying. For this reason, it is important to carry disability insurance. Following a divorce it is even more critical. Without the security of a spouse's income to help cover necessary expenses, they all fall on your shoulders. Protect everything you have worked for with an independent disability insurance policy.