Avoid Divorce Insurance Mistakes

Warning: Will Your Insurance Protection Survive Your Separation and Divorce?

Divorce is traumatic enough without the financial complications of an uncovered insurance loss. Attorneys and judges are quick to consider life and health insurance in divorce cases. But frequently other forms of personal insurance do not get much attention. During a divorce judges frequently tell the parties in a divorce not to make any changes to their insurance policies. What the judges are trying to do is stop malicious tampering with insurance policies by the warring spouses. However, legal professionals sometimes overlook common but crucial property and casualty insurance issues.

So what is the separated couple to do? Communicate with each other! I know, I know, you just want out, right? But under the right set of circumstances, both spouses can lose a lot of money if one has an uncovered claim during separation or before the divorce is final. It takes cooperation from both parties to make sure this does not happen.

I encourage both spouses to meet with their insurance broker or agent before or immediately after separation. Insurance contracts vary and your agent can point out any changes needed. Here are some issues to talk over with your agent.

Auto Insurance Issues

• Notify your agent of a change of garage location if one spouse decides to have a separate residence. This may not sound like a big deal, but it is. In many insurance policies a spouse is not an insured when they are not a resident of the household.
• Changing the use of the automobiles will change the premium. For example, if the spouse that moves to another residence must drive farther to work the premiums may increase.
• In many instances both spouses will lose their multi-car discount. This will result in higher premiums for both drivers.
• There can be problems related to whose name an auto is titled. This can be particularly worrisome since a spouse may not have an “insurable interest” in an auto which is not titled in both names.
• If one spouse owns a business and all autos are owned and insured in the business, serious insurance issues arise. Even without the complication of separation and divorce, this scenario can leave both spouses without personal liability coverage. So, be sure to cover the ownership of autos thoroughly with your agent.
• Once the divorce is final, the autos should immediately be re-titled in the proper names and separate insurance policies purchased. Do not wait for your next auto insurance renewal date to get this done. Your auto insurance should be in the name of the party that now owns the car.
• If there are teen drivers, which visit the divorced parents and drive their autos, be sure to let your agent help you sort out your liability exposures. Caution: Putting an auto in a teen driver’s name and having them buy a separate policy is not advisable. It is expensive and usually does not eliminate the liability for the parents. Nevertheless, I see this happen with alarming frequency in divorce cases.

Homeowners and Renters Insurance

• If the home or renters insurance is only titled in the name of one spouse this creates a problem. The problem is an agent may be reluctant to make any changes requested by the spouse who is not a Named Insured. If Joey goes out for a pack of cigarettes and never returns, his spouse may have an issue if she is not on the title of the home and a Named Insured. The good news is some insurance companies are now allowing the abandoned spouse to assume the rights of a Named Insured. Talk with your agent and they will help you sort out this situation if you are an abandoned spouse.
• Even if you and your spouse are both listed as Named Insureds on your policy, your agent has an obligation which is often misunderstood. Once the insurance agent understands there is a separation, the agent should notify the other spouse of any change requests. Both spouses must agree to any changes in the insurance policies.
• If a spouse moves to a new residence, that spouse will likely need a new homeowners or renters policy. This new policy will protect their belongings and provide them with liability insurance associated with the new residence. Some policies will allow an extension of property coverage and liability for the spouse that is in new location. Use caution because these coverage extensions are usually limited. Talk with your agent…don’t make assumptions about your policies!
• It may not be a good idea to delete a spouse from the homeowners/renters policy until after the divorce is final. A spouse that is not a Named Insured may find themselves without insurance for claims arising out of the ownership of their former joint residence.

Umbrella Liability Insurance

• Couples buy this type insurance so that they have higher limits of liability protection. This type policy is usually a “following form policy”. This means if you change any underlying liability policy, you will automatically change the umbrella policy. This point is often overlooked and can effectively void the protection the umbrella policy offers. Not good!
• Your umbrella policy contains covenants about your underlying liability insurance limits. If you do not fulfill these requirements, you will void the coverage. This leaves you without the extra layer of liability protection. This is another reason to seek your agent’s advice.
• Your umbrella insurance company will likely send each spouse a request for information if the policy is renewable before the divorce is final. If the exposure of the spouses has changed significantly, they may increase the premium or refuse to write a renewal policy for one or both spouses. The good news is the price of an umbrella policy may decline after a divorce because the exposures are usually less for recent divorcees.

If all this is a bit mindboggling, don’t fret. A good insurance agent can help keep both parties properly insured during separation and divorce. And your agent will do most of the work for you. But you must let them know what is going on before they can help you.

Each divorce and insurance situation is different. Policy terms and circumstances vary. So it is important to consult with your attorney, divorce financial planner and insurance agent in order to avoid uncovered insurance claims.

For more information on insurance topics, Chester can be contacted by phone at 615-690-8856 or by email at chester@insurancebutler.com His blog is published twice weekly and you may subscribe at The Butler Blog.

Chester A. Butler III, Certified Insurance Counselor and Certified Professional Insurance Agent, is the President of The Butler Company, Inc. in Nashville, Tennessee. His insurance practice spans 39 years. He is a member of the Tennessee Robert E Musto Insurance Hall of Fame, housed at the Middle Tennessee University School of Business. As the Vice President of Education for the American Insurance and Marketing Society, he is a frequent speaker and agent trainer for insurance companies and the Professional Insurance Agents Association of Tennessee.