Divorce Insurance (Yes, Divorce Insurance)

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.

Then, if you get divorced and your policy has matured (see below for the maturation rules), you would send WedLock proof of your divorce. In return, you’d receive a lump sum of cash equivalent to the amount of coverage you had purchased.

So how does the company prevent people who know they are going to get a divorce from signing up? To prevent that kind of adverse selection, the policies don’t mature until 48 months after their effective date (though people can purchase additional riders to reduce that maturity period to 36 months and to get their premiums back if they happen to divorce before the policy matures).

And what about other possible selection problems related to people with volatile relationships or a family history of divorce purchasing policies in large numbers?John A. Logan, chief executive officer of SafeGuard Guaranty, said the company has performed risk assessment and actuarial studies with this in mind. He notes that even in the worst case scenario, not all of those divorces would happen at once.

Still, it seems that people would be better served by self-insuring, i.e. putting $15.99 per month into a savings account and earning interest, rather than paying for such coverage and then possibly never getting divorced. Plus, some divorces are relatively amicable and may not cost tens of thousands of dollars.

In response to this notion, Mr. Logan said that while people could end up with more money that way, there’s always the chance that money would be squandered by a soon-to-be ex spouse. He also argues that the $250 per-year appreciation per unit is much more than the miniscule returns available today on savings accounts.

“There is nothing to stop your spouse from raiding those investments and taking it all. And then with all the money gone, you’re left with all the legal bills,” said Mr. Logan, who said the idea for the product came from his own experience with a financially painful divorce. In addition, the company’s Web site makes the argument that most people don’t have the discipline to save consistently.

Another possible downside of the coverage: the policies, which are being underwritten by surplus lines insurance company Prime Insurance Company, aren’t covered by any state guaranty funds that would honor them if the provider goes bankrupt. But Mr. Logan said the company plans to have the policies fall under such programs in the future.

To help people determine whether they need the insurance, the company has a Divorce Cost Calculator and a Divorce Probability Calculator, among other similar calculators on its site.

So how about it? Ready to pony up about $16 a month for what starts at just $1,250 of coverage?