Markets in Everything: Divorce Insurance

by on August 8, 2010 at 7:04 am in Economics | Permalink

NYTimes–Here’s a new option for those worried they’ll end up on the wrong side of the statistics that show so many marriages ending over time: divorce insurance.

SafeGuard Guaranty Corp., an insurance start-up based in North Carolina, recently released what it’s billing as the first world’s first divorce insurance product. Here’s how its WedLock product works.

The casualty insurance is designed to provide financial assistance
in the form of cash to cover the costs of a divorce, such as legal proceedings or setting up a new apartment or house. It is sold in “units of protection.” Each unit costs $15.99 per month and provides $1,250 in coverage. So, if you bought 10 units, your initial coverage would be $12,500 and you’d be paying $15.99 per month for each of those units. In addition, every year, the company adds $250 in coverage for each unit.

My wife tells me she already has divorce insurance, it's called a job.

Hat tip Mark Perry.

Bob Knaus August 8, 2010 at 9:08 am

How does the insurance company make money on this? $15.99 per month = $191.88 per year in premiums, at which point the company adds $250 in coverage. If you are reasonably certain that a divorce is in your future, this is free money.

RR August 8, 2010 at 9:31 am

“To prevent spouses already planning a divorce from cashing in, SafeGuard requires at least 36 months from the effective date until spouses can claim the coverage.”
http://www.investingcontrarian.com/financial-news-network/wedlock-startup-now-selling-divorce-insurance/
So they roughly breakeven if only 1 out of 3 couples divorces in 3 years.
Probably reasonable odds.

Bill August 8, 2010 at 9:52 am

Next to cancer insurance, this sounds like a ripoff–you can self insure by simply setting up savings accounts for both parties or having a prenuptial.

Now, if you could name the kids as the beneficiary, then there might be a different incentive structure–neither paying party spouse would benefit and whoever was the best parent would win custody.

Yancey Ward August 8, 2010 at 10:44 am

At least it wasn’t called Manuel.

jeanlouisefinch August 8, 2010 at 3:13 pm

And what stops happily married couples from filing for legal divorce every 3 years and using the cash to for 2nd, 3rd, and 4th honeymoons after their re-marriages? Beware, however, the company isn’t “covered by any state guaranty funds that would honor them if [more like ‘when’] the provider goes bankrupt.”

Lynnehs August 8, 2010 at 10:09 pm

This is sick. If you start your marriage with plans for its end, how do you expect it to last? You need to be committed to staying together for it to work.

Other than people marrying the wrong person (a mismatch in values, marrying too soon or too young), or being a victim of bait-and-switch (abuse, drug abuse, other deal-killer secrets), I think the next biggest thing causing divorce is a lack of commitment. People don’t realize that yes the honeymoon does have to end (a biological reality) and after that, you have to put in some effort). “Drifting apart” only means you didn’t spend enough quality time together. You have to jump in with both feet. Plans about what to do “just in case” means you’ve already got one foot out the door. (In case anyone’s wondering, I’ve been married more than 11 years.)

Not to mention…is there NOTHING someone won’t put a price tag on? I think I may get ill!

Ali D August 9, 2010 at 12:48 am

I, too, am disturbed by the fact that we would get to a point in our society where we might need something like this. It seems logical to want to look to the future and protect yourself from unexpected events– but in the case of marriage, shouldn’t we focus our attention on picking the right mate in the beginning? It is a given that marriage is hard. And if we allow ourselves an ‘easy out’ what chance do we have? If you have any doubt in a marriage before it begins, then you shouldn’t be getting married.

With that, I understand that there are some marriages that just don’t work. Amongst other reasons, people change and end up wanting different things. However, I think a more rewarding ‘divorce insurance policy’ should come in the form of making sure the other aspects of your life are strong. Friends, family, having a job you like, having a hobby, etc. I feel that these are the things that will prove to be most helpful to you when you find yourself in difficult situations such as divorce.

bla bla August 9, 2010 at 6:24 pm

There does seem to be something amoral about this. But I would be very interested in hearing how they determine the rates for this insurance. Does someone interview the couple with an eye to figuring out how likely divorce is? What questions do they ask? Would the establishment of this kind of industry provide incentives to do real work on how to prevent divorce? Would that work actually lower divorce rates over time?

mike August 10, 2010 at 7:31 am

The way this works is the same way all insurance works…using the example above, you pay $159.90 per year for $12,500 worth of coverage. They look at the average life expectancy of marriages with people of the same age as you and figure out what the odds of your marriage failing within the first so many years. Let’s say that we have 10,000 people that buy the policy and they are all the same age and other factors that this company looks at, and we’ll say there is a 50% chance of the marriage ending within the first 10 ten years. Not everyone will get divorced at the same time so you’ve got a minimum of $1.59MILLION in first year premium collected from your policy holders, which the company is investing and collecting interest on. Let’s say 10% (seems high to me…they should still be in the honeymoon phase but whatever)of your policy holders got divorced…that means you paid out $1.25M. Not taking into account interest the company made $340,000 and they’ll be getting the second year of premiums, and they’ve grown the number of policy holders by now so it all snowballs after the first year or two.

****EDIT****
I made a mistake…you are paying $159/month! It is 15.99/unit/month so this company will be doing even better than I thought! In a year with 10,000 policyholders they would bring in $19 MILLION and still possibly pay out $1.25M, or hell even if half of their policyholders got divorced in the first year they only pay out $6.25M.

Hope this helps!
Mike

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