Divorce insurance

To hedge the happy day

It’s not April 1, so I think the New York Times is on the level:

The casualty insurance [from SafeGuard Guarantee 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.

The obvious problem here is adverse selection. Why wouldn’t a couple about to divorce buy a policy, then cash in a month later?  They probably agree their marriage was a sham and a fraud, so why not make it criminally so? Heck, it might be the last thing they ever do together.

To thwart that last gasp of marital harmony, the spoilsport company won’t pay if the divorce occurs within 48 months of policy purchase.

Now the company calls this “casualty” insurance, as in your marriage would be the casualty. But this is structured much more like a life product, particularly the part about receiving an extra $250 in coverage for each year you pay premiums. This sounds like paid-up additions on a whole life policy.

With most whole life – I’m simplifying here – the actuarial rate of the policy declines over time but the annual premium stays flat. With the difference, you buy extra coverage.

[Wonk] For students of life contingencies, substitute divorce for death as the force of decrement. [/wonk]

Poking around the web site, the target demographic seems to be engaged couples, which makes sense. Engaged couples never think they will divorce. I’m sure Britney Spears thought the Jason Alexander thing would last. Ditto for Carmen Electra-Dennis Rodman or Ernest Borgnine-Ethel Merman or (perhaps) Renee-Kenny.

So time to pop the question: Is it worth it?

Well, the alternative would be to invest the premium. On that basis, if your marriage nudges past the waiting period then collapses, you’ve got yourself one helluva deal. Bennifer could have used this.

Had Brad Pitt and Jennifer Anniston bought a policy when they married in 2000, they would have paid $1,152 in premiums but received $2,500 in benefits five years later, a 22.7% annual return. (I’m assuming the policy benefit grows during the waiting period.) Had they bought 10,000 units, the world would have a couple less rom-coms.

However, the longer you are married, the lower the return. A 10-year marriage would return just over 9% – not bad. But Al and Tipper Gore (40 years) would have returned a puny 1.63%, barely a carbon offset.

To help guide your purchase, the company’s web site has a helpful Divorce Probability Calculator with a margin of error of ± 13%. (Don’t believe me? Click the link.)

Did I take the quiz? Well, of course I did! Liz and I have a “Very Low Probability” of divorce. So excuse me while I go give my wife a kiss.


2 thoughts on “Divorce insurance

  1. Lynda says:

    Who says that an actuarial analysis can’t be sweet? Kudos for putting the romance in probability.

  2. Is it me or is that WedLock banner just incredibly twisted?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: