Changes In Your Life Situation Can Impact Insurance Needs And Credit: SEPARATION OR DIVORCE
Heading for Separation or Divorce? Protect Your Assets and Don’t Leave Insurance Out of the Equation
Changes In Your Life Situation Can Impact Insurance Needs And Credit
October 14, 2010
New York Press Office: (212) 346-5500; email@example.com
NEW YORK, October 14, 2010 — Although statistics vary, many sources say nearly half of all marriages in the U.S. are likely to end in divorce. But no matter the figure, the transition through separation and divorce can be daunting. Many aspects of your life will inevitably be affected—including your insurance needs, according to the Insurance Information Institute (I.I.I.).
1. Auto Insurance
A separated or divorced couple will need to decide who gets which car. If there is a change in the ownership of a car it will also entail a change in who holds the insurance policy. If you or your spouse changes your address, you should get a separate auto policy immediately. And if either of you needs to buy a new car, you should arrange for a new auto policy before the car is registered. Removing a former spouse from the insurance policy also protects you from possible liability if he or she is involved in an accident and gets sued.
- Replacement Cost. Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.
- Extended Replacement Cost. Provides additional insurance coverage of 20 percent or more over the limits in your policy, which can be critical if there is a widespread disaster that pushes up the cost of building materials and labor.
- Inflation Guard. This coverage automatically adjusts the rebuilding costs of your home to reflect changes in construction costs. Find out if your policy includes this coverage or if you have to purchase it separately.
3. Life Insurance
Married couples buy life insurance for a variety of reasons that include covering existing and anticipated debts and financial obligations as well as providing an income and/or inheritance for their dependents in the event of the death of one or both of the spouses. When a couple divorces, these obligations generally still exist, so the issue of what to do with existing life insurance policies should always be considered during the divorce settlement.
4. Disability Insurance
Many people own life insurance because they are aware of the risk of dying; however, most people ignore the risk of disability. Yet, between the ages of 25 and 55, a person is more than twice as likely to become disabled through an accident or disease, as they are to die. If a former spouse becomes disabled and cannot work, it could threaten alimony and child support payments, so it is important to safeguard against this possibility by ensuring that his or her income is covered in an individual disability insurance policy.
5. Long-Term Care Insurance
Long-term care insurance specifically covers the costs of services in a home, such as assistance with activities of daily living, as well as care in a variety of facilities. The need for long-term care services arises from chronic health conditions like cancer, from physical disabilities or even from a military injury. Couples going through a divorce should be sure to take into account both the need to care for aging parents and dependent siblings as well as the cost of this insurance when assessing needs and allocating assets.
- Close joint accounts. It is particularly important to do this before divorce proceedings in case your disgruntled spouse racks up charges that you will be held responsible for later. As long as there is an outstanding balance on a joint account, both parties are responsible for payment. Generally, any debt incurred by one spouse is also the responsibility of the other, regardless of whose name is on the account until after the divorce.
- Check credit scores. As early as possible in the divorce process, pull the most recent copy of your individual credit reports from one of the three main credit bureaus: Experian, Equifax and Transunion. This is something that should be done at least once a year, but it is especially important after major life events such as a divorce. By checking your credit score, you can see if your credit has been adversely affected by the impending divorce. It will also show if there are any shared debts that are being neglected and can point both of you in the right direction when canceling any joint accounts.
- Maintain individual accounts. Women who drop their husband’s name and choose to use their maiden name will not erase the credit history established under their married name, as credit histories are tied to social security numbers, not names. However, in this case, the woman must establish a new credit record under her own name, especially if all her previous credit was held jointly with her husband. In order to expedite this process, consider turning existing joint credit cards, gas cards and retail accounts into individual accounts. Doing this will mean not having to re-establish credit after a divorce.
- Contact creditors. Alert creditors that a divorce is pending. If there is a change of address, make sure they are informed so that bills will continue to be received from all joint accounts so no late fees are incurred.
- Settle with creditors. If the entire debt cannot be paid in full, offer to close the account by paying a smaller amount than is owed. Get a letter from the creditor that the account has been paid in full and a written promise that they will not file anything negative about the account to the credit reporting agencies.
- Freeze accounts. If you are unable to pay off or come to a settlement agreement regarding the balance owed on open accounts, it is advantageous to freeze the account in question. While you cannot use the account that has been frozen, this will provide protection in the long run. Once the divorce is final, the balance owed on the account can be transferred to the party the court holds responsible for the debt.
- Make sure all bills are paid on time. All it takes is one late payment to hurt your credit. Do not skip payments because you think it may ultimately be your former spouse’s responsibility. As long as your name remains on the account, you are responsible for payment.
- Reestablish accounts. The sooner accounts are placed in the correct party’s name, the closer he or she will be to establishing a credit record separate and apart from their former spouse.
FOR MORE INFORMATION ABOUT INSURANCE: www.iii.org
THE I.I.I. IS A NONPROFIT, COMMUNICATIONS ORGANIZATION SUPPORTED BY THE INSURANCE INDUSTRY.
FOR MORE INFORMATION ABOUT INSURANCE: www.iii.org
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