Is Divorce Insurance on the Horizon?

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December 14th, 2009

A professor from the University of Illinois at Chicago has revealed his belief that divorce insurance is a possibility for insurance companies. According to his research – and sketches of actuarial tables – he believes that his type of insurance, if ever initiated, would be hugely beneficial to parties going through a divorce.

Where the of Divorce Insurance Idea Stems From

J. Christopher Westland, a professor of information and decision sciences, says that his idea came after watching a friend go through a divorce that brought with it major financial consequences. This is when he decided to sketch actuarial tables, which he said would not have been possible prior to the 2000 U.S. Census, which asks detailed questions allowing researchers to computer the risk associated with divorce.

According to his theory, about two million Americans get married each year. Because couples have a 20 percent chance of getting divorced within the first five years of marriage and a 30 percent chance of divorce within 10 years, he feels the idea might actually work.

How Would Divorce Insurance Work?

Westland envisions that the insurance would cover divorce costs (court costs, attorney fees); however, not the settlement or living costs afterward. He envisioned an annual premium of about $2,500, which would pay for about $200,000 in divorce costs. He also noted that premiums could be adjusted based on the level of coverage.

Could it Work?

Westland recognized that the possibility of some trying to divorce early to capitalize on their policy is a possibility, which is known as moral hazard. While he suggested the idea of a blackout period to solve this problem, others in the field, like law professor David Hoffman at Temple University suggested that divorce insurance would be an impossibility since no insurance company would touch a policy type guided by moral hazard versus more tangible hazards like accidents, illnesses and weather.

Right now, the idea is a work in progress, and in all honesty, it may never be executed. But if the possibility were available, would you consider divorce insurance for you and your spouse?