Should you say 'I do' to divorce insurance?
A North Carolina company has a new product called WedLock, which aims to defray the costs of a breakup.
First there was wedding insurance, which reimburses you for lost deposits and other expenses in the event your wedding is canceled because of a death in the family, dangerous weather or other unforeseen circumstances. (We've explained it several times in the past, most recently a couple of months ago.)
It charges $16 a month for a single "unit" of coverage, which equals $1,250 in benefits. You can buy additional units at the same price -- and keep going right up to 200 units, or $250,000 of coverage. As long as you continue paying the premiums, 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, legal 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%, 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's called an accelerated maturity, you can reduce that 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 doing the underwriting for Safeguard. If that company, Prime Insurance, goes down the tubes, your premiums go with it.
While wedding insurance may seem like overkill in terms of cost vs. benefit, it could be justified. It costs only a couple hundred bucks and protects what could add up to thousands in lost deposits if a hurricane or other calamity destroys your wedding day.
I'm less sanguine about divorce insurance. This type of insurance seems fundamentally flawed both financially and emotionally.
Financially, you're paying $192 every year for $1,250 in benefits -- and you have to pay four years' 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% 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% is no simple feat. But it's certainly possible. Witness our online stock portfolio.
Now let's consider a WedLock policy. If you paid WedLock $192 every year for five years, upon divorce you'd get $2,250 ($1,250 plus four 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.
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 monthly per unit that will refund any premiums you've paid -- 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 Logan, here's what he said:
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 like exceedingly odd language from a company selling a product whose only value springs from divorce. This product doesn't prevent divorce -- it encourages it.
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.
Of course, we suspect most people probably won't get close to facing that kind of decision. Think about approaching your spouse with, "Say, sweetheart, take a look at this website. Doesn't this look like a good idea?" Nobody suggesting divorce insurance to a spouse is going to be married for four more years. Nor is anyone who keeps that kind of financial secret from his or her spouse.
I asked Logan whether 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 Logan and WedLock reside, state insurance regulations make his product prohibitively expensive.
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