5 Crucial Insurance Changes After Divorce

Any major life change sends a ripple effect through your finances — especially a divorce. Insurance matters may seem trivial next to the emotional upheaval of ending a marriage. But minding the details now can prevent financial pain later.

Here’s a look at five insurance changes to address after a divorce.

1. Life insurance

Buying life insurance and naming an ex-spouse as beneficiary may be required under a divorce agreement. If a former spouse dies, the surviving ex-spouse can use the life insurance payout to replace alimony or child support payments.

Term life is an inexpensive way to provide the safety net. You choose the term, such as 5, 10, 20 or 30 years, and the amount of coverage you need when you get life insurance quotes. Once the term ends, the coverage ends.

If there are no ongoing financial obligations as part of a divorce agreement, then it may make sense to remove an ex-spouse as a beneficiary on an existing life insurance policy.

2. Disability insurance

Disability insurance pays a portion of your income if you can’t work because of an injury or illness. It’s often overlooked, yet financial experts rank it up there with life insurance as an important financial priority. The odds of becoming disabled for 90 days or more are greater than dying before retirement. Today's 20-year-olds have a 1 in 8 chance of dying before reaching age 67 and a more than 1 in 4 chance of becoming disabled, according to the Social Security Administration.

Couples should plan for disability insurance before the divorce is final, the American Institute of CPAs says. It’s a good idea to have disability coverage of your own if you earn an income. If you’ll depend on alimony or child support payments, then you’ll want the divorce agreement to require your ex-spouse to have coverage.

3. Health insurance

You can keep your health insurance after divorce if you have your own coverage. Depending on your state's law and type of health plan, you may not be eligible as a dependent on your spouse's employer-sponsored health plan once the divorce is final. You have a few options:

• Sign up for coverage through your employer if it’s offered. You can sign up outside the regular open enrollment period if you’ve lost coverage from another source.

• Buy a policy directly from a health insurance company or your state’s health insurance marketplace.

• Keep the coverage through your ex-spouse’s health plan, but pay for it yourself. To do this, you elect COBRA insurance, named after the federal Consolidated Omnibus Budget Reconciliation Act. The law lets family members who lose group health insurance because of divorce and other life changes buy the coverage for up to 36 months. The law applies to health plans sponsored by state and local governments and private companies with 20 or more employees. Many states have similar laws that apply to businesses with fewer than 20 workers. To elect COBRA coverage, let your health insurance plan provider know about the divorce; you’ll receive instructions on how to continue coverage and the cost. Questions? Talk to the person in charge of benefits at your ex-spouse’s employer.

4. Car insurance

You’ll need separate policies once you’ve divvied up the cars. Let the insurer know about your divorce, and remove your ex as a driver on a policy you keep under your name. If you’re buying a new policy, get car insurance quotes from different carriers. Shopping around for the best deal is especially important because you may lose discounts you had before, such as price breaks for being married and insuring multiple cars with one company.

Teen drivers? The kids may need to be listed drivers on both ex-spouses’ policies. The only way to make sure is to check with your car insurance companies.

5. Home insurance

Let your home insurance company know if one of you moves out during the separation. After the divorce is final, the policy should be in the name of the homeowner.

Meanwhile, shop for renters insurance if you move to an apartment during the separation or after divorce. Renters insurance covers your belongings and provides liability insurance, which pays for injuries or damage you cause others. For instance, it would pay for repairs if your kid threw a ball through someone’s window, or pay for medical treatment if a guest tripped and fell in your apartment and you were held responsible. Renters insurance also pays for expenses if you have to stay somewhere else while your apartment is repaired after a disaster, such as a fire.

Insurance matters can be complicated in the best of times, let alone when you divorce. Keep in touch with your insurance company to make sure all the details are squared away.

A previous version of this article misstated the instances in which you can’t stay as a dependent on your spouse’s employer-sponsored health plan once a divorce is final. This article has been corrected.