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Insuring your life

May 28, 2015

Is insurance part of your divorce agreement?

You may think divorce cuts the ties that bind, but if child or spousal support is involved, you’re financially united for richer and for poorer.

While most divorcing couples focus on splitting assets and hammering out support payments, too many neglect one major post-divorce reality: insurance.

Whether you’re relying on or are responsible for paying support, or just setting up life as a newly single person, you need to make sure you maintain sufficient insurance coverage. Why is it so important? Start by asking yourself these four questions:

1. What if your ex dies — or you do?

Yes, life insurance is part of financial planning for families, but it should still be part of the picture when you get divorced. If you rely on support payments from your ex, could you manage if he or she died and the payments stopped? And if you’re the one making the payments, did you know that your obligations don’t generally stop when you die? Without provisions made to cover future support payments, your estate could be tied up for a very long time. Make sure the ex-spouse making the payments has a life insurance policy that names the other as the beneficiary, to cover spousal and/or child support. In fact, consider making it part of your separation agreement; arrange with your lawyers for the beneficiary designation to be signed at the same time as the separation agreement, to ensure that it gets done. To be sure the beneficiary is not changed later, make it irrevocable. And to confirm that all is being handled correctly, seek independent legal advice.

How much insurance you need depends on how much support is being paid, as well as the age and stage your kids are at. If they’re young, the amount of the policy should probably cover more than just the monthly payments. It should cover all the big expenses that raising kids will incur over time, such as education savings.

2. What if one of you becomes too sick to work?

Whichever person is making the support payments has to pay his or her own bills as well, so there’s a good chance that employer-sponsored disability insurance might not provide enough coverage to go around. For the good of both of you, consider taking out an additional disability insurance policy in the event that one of you is unable to work due to illness or accident.

And if one of you is staying home to look after the kids, disability insurance is still important to help make ends meet. If illness strikes or an accident happens to the stay-at-home parent, someone will have to look after your kids. A disability insurance policy means you can pay for help.

3. How will you pay unexpected medical bills?

If you’re used to being covered under your ex’s plan alone, or in tandem with your own workplace plan, you need to rethink some of your insurance needs. Consider getting major medical insurance to cover the cost of big bills not covered under your province’s health insurance plan, which your own plan (if you have one) may not cover sufficiently. Another thing that’s easy to forget if you’ve had it for years is medical insurance for traveling abroad. Without work-based coverage, you now have to cover yourself when you go away, so make sure you factor this into the cost of travel to ensure you’re protected in case you get sick or injured while abroad.

4. Is your home or car covered under the right name?

Do you have a new home or car, or has the title to your home or the ownership or lease for your car been put in your name alone? If you haven’t had home or auto insurance before, you’ll need to get coverage as soon as possible. You’ll also need to make sure the name on your insurance policies is the same as the name on your home title and car ownership or lease. A home or car insurance policy is an agreement between the insurance company and the owner of the home or car, says Sylvain Lachapelle, director, personal lines at belairedirect. “If you are not the owner or lessee, the agreement is not valid and in case of a loss you will not be covered.”

As a newly single person setting up house on your own, your insurance needs have changed. Be careful to review your policies and make sure you have the coverage you need.

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