Insurance for the high cost of divorce
The economic stress caused by the 2008 recession and its aftermath was in some cases the final straw that pushed couples into divorce. Ironically, these same hard times no doubt also kept together couples who were on the verge of divorcing but found they could no longer afford to do so.
Divorce can be extremely costly – even if the lawyers’ fees are kept to a minimum. At the very least, where there was once one household, there will now be two. One solution to the liquidity squeeze is divorce insurance, which you can buy over the internet and is therefore available to South Africans.
“In the United States, 44 percent of people who divorce go below the poverty line because the cost of divorce is so incredibly high,” John Logan, who originated the idea of WedLock Divorce Insurance, says.
Logan is the chief executive of SafeGuard Guaranty Corporation, the US-based company that developed and markets WedLock Divorce Insurance.
The product is not licensed in South Africa and therefore cannot be marketed in this country.
The policies are sold via the SafeGuard website and payment is made by credit card. The underwriter depends on where the policyholder is located.
If you, as a consumer in South Africa, bought WedLock Divorce Insurance, you would pay the premiums in dollars and the policy would be underwritten by Omega Risk Management in Anguilla, a British overseas territory in the Caribbean.
Anguilla is considered a tax haven and is home to about 235 captive insurance companies. These captives, such as Omega Risk Management, allow parent companies to provide insurance products that the parent might not otherwise be able to do.
Your policy would be regulated by the Anguillan authority – the Financial Services Commission – and, take note, you would not have the protection of South African regulators and ombudsmen if you felt in any way aggrieved as a policyholder or beneficiary. SafeGuard is monitored by regulators in the US.
Logan says SafeGuard would like to have an insurer in South Africa to provide its products. “First we want to have an insurer in Europe, but South Africa is on the drawing board.”
These are the main features of a basic policy:
* You buy units. Each unit gives you cover of $1 250. At the time of researching this article, one unit cost $15.99 a month, but Logan told Personal Finance in an interview that the price would fall to $10 a unit in October or November, when WedLock enters a new phase. Once the policy is issued, the premium never increases.
* Four-year waiting period. During this time you pay your premiums but you will not receive any benefits if you divorce.
* Payout when the divorce is final. If you divorce after the waiting period, you receive a payout to the full value of your cover as soon as the divorce is finalised.
* Your cover grows every year at no extra cost. You receive additional cover of $250 per unit after the waiting period. The first increase would be on the sixth renewal date and the next on the seventh renewal, and so on as long as the policy is in place, Logan explains. To illustrate, a 10-unit policy will give you cover of $12 500. With the first annual increase, the face value of your policy would rise to $15 000 [$12 500 + ($250 x 10)], and it would increase by $2 500 with every subsequent renewal.
* Marital status. For there to be a divorce, there has to a legally recognised marriage, but this can be in the form of a civil union or a civil marriage. Long-term partnerships cannot be covered even if there is a contract of some kind.
WedLock was launched in August 2010, and Logan says the company is now entering phase two, which is to offer marriage assurance.
“Marriage assurance provides the same coverage as WedLock, but it looks at insurance from a different perspective – we will be paying the couple to stay together,” Logan says. If the couple stays married, the beneficiary receives an automatic payout of $10 000 per unit of insurance when the policy is renewed for the 25th time. Marriage assurance will cost $15 a unit a month.
“Statistically, unfortunately, we are more likely to pay out for divorce claims than marriage benefit claims,” Logan says.
The US census now estimates that only 33 percent of couples married today will celebrate their 25th anniversary, he adds.
WHAT IS THE DIVORCE RATE?
There is a rule-of-thumb figure, usually quoted by disaffected teenagers and pulpit-pounding preachers, that one in two marriages ends in divorce. That implies a divorce rate of 50 percent, but, come to think of it, what does “divorce rate” mean?
In South Africa, 30 763 divorce decrees were granted in 2009 (these relate to civil marriages only and not to registered customary marriages and civil unions). In the same year, 171 989 marriages were registered, according to Marriages and Divorces 2009, a document published in December 2010 by Statistics South Africa.
But the “divorce rate” is not the ratio of divorces to marriages in any one year. Instead, statisticians refer to the “crude divorce rate”, which is the number of divorces per 1 000 of the total population, and the “modified crude divorce rate”, which is the number of divorces per 1 000 married couples.
Stats SA’s most recent modified crude divorce rate dates from 2005 and comes in at 528.2 per 100 000 married couples.
According to Marriages and Divorces 2009, almost half of the divorces in 2009 were from marriages that lasted less than 10 years.
Most divorces occurred among couples who have been married for between five and nine years (27 percent), while 21 percent of divorces were to couples who had been married for less than five years.
“As the duration of marriages increased, the number of divorces decreased,” the report states.
John Logan, the chief executive of SafeGuard Guaranty Corporation, says that in the United States, 32 percent of first marriages end in divorce.
For those among the one in three that fail, the chances of success decline even more sharply with later marriages: 67 percent of second marriages and 72 percent of third marriages end in divorce, he says.
* This article was first published in the fourth-quarter 2011 edition of Personal Finance magazine.