August 1, 2015
Carrie felt good about her divorce settlement. Her ex-husband Jamie was going to pay her $3,500 per month alimony for 5 years, long enough for Carrie to go back to school and earn her MBA. She planned on starting a career as a management consultant once her youngest boy was in high school.
18 months after the divorce Jamie died in a car accident. He had no life insurance so Carrie’s alimony stopped, as did the child support payments. Now Carrie was trying to support herself and her 2 children on her part-time salary.
Carrie’s divorce attorney should have insisted that Jamie carry a life insurance policy large enough to cover the alimony and child support, with Carrie as the beneficiary. In this way Carrie’s income would be insured and she could continue with her life plans.
In most of the divorce cases I’ve worked on the discussion of life insurance is common. But what if Jamie had not died in the car accident and instead had been disabled, no longer able to work? This would also jeopardize Carrie’s income. Yet the discussion of disability insurance almost never comes up during the divorce.
Statistics show that during the course of a person’s career he or she is three and a half times more likely to be disabled than to die. At no age is the risk of death greater than the risk of disability.1 According to the Council for Disability Awareness 1 in 8 workers will be disabled for 5 years or more during their working career. A typical male, age 35, 5’10", 170 pounds, non-smoker, who works an office job, with some outdoor physical responsibilities, and who leads a healthy lifestyle has the following risks:
If this same person used tobacco and weighed 210 pounds, the risk would increase to a 45% chance of becoming disabled for 3 months or longer.
The possibility of becoming disabled is a greater risk to an ex-spouse dependent on income payments than the possibility of an untimely death. Even if the disability is not permanent, a temporary loss of income in addition to medical bills can put a person’s ability to pay alimony at risk. It would be a great benefit to have disability insurance as well as life insurance in place.
The easiest way for most people to obtain disability insurance is through a group plan offered through their employer. There is no medical underwriting and the premiums are often much cheaper than buying an independent policy. However the coverage may not be as great as what can be purchased individually, and the coverage is lost if the employee leaves that job. While an individual policy has better coverage it will also be more expensive and could be harder to obtain, depending on the person’s lifestyle (whether they engage in risky behaviors such as skydiving) and health.
If you are considering a life insurance requirement to a divorce settlement, think about also adding an obligation to obtain disability insurance.
1. http://www.affordableinsuranceprotection.com/death_vs_disability
