WHAT IF...YOU NEED AN INSURANCE CHECK?
By Margorie Engel, Ph.D., © 1999*
Combining two families — adding more children, more cars, more pets, more extended family members and friends traipsing in and out — creates added potential for financial liability. Additional responsibility means more or possibly different insurance coverage.
Homeowner or Renter Insurance
Additional furniture, electronic equipment, and just plain "stuff" means you need to take a look at your existing insurance coverage. Itemize the household items that each of you are bringing to your new home. Your own insurance company may have inventory forms or you can use FORM-ula 27, Household Inventory and Appraisal (located in The Divorce Decisions Workbook, McGraw-Hill) to itemize household furnishings.
Consider a Personal Articles Floater, also known as a PAF, to extend protection on expensive personal items such as jewelry, antique collections, expensive sports equipment and other possessions that are not usually insured for full value on standard policies.
You may either break your pocketbook or get a break on automobile insurance. Sometimes insurance companies quote a fleet rate for a number of cars registered at one address. Fleet rates for all the cars owned by members of the new household may be less that the sum total of what each independent household was paying before the family merger. On the other hand, teenage drivers can be extremely expensive. If one of you has been insuring only a single car for yourself as the adult driver, you're going to have sticker shock when you see the bill for one or more teenagers behind the wheel.
A larger household group with more activity increases the chances of someone accidentally getting hurt at your home or when a household member is driving one of your cars. "Umbrella insurance" is aptly named because it serves as insurance coverage above and beyond the payments made by your other policies. Typically, the company that insures the automobiles will underwrite the umbrella policy coverage because the drivers of cars present the greatest liability exposure.
An appropriate amount of umbrella insurance may financially protect you from large liability claims if visitors are seriously hurt on your property (for example, by falling through large sliding glass doors or down a flight of steps) or as the result of personal injury when one of your household's drivers is in an automobile accident. Umbrella insurance is especially important if you have several teenage drivers in your new family.
Reorganizing Insurance Policies
Photocopy the household, automobile, and umbrella policies that you each have at the time of remarriage. Send a set to both of your existing insurance carriers. Ask them to match up coverage and give you a quote on their best deal for equal or better coverage.
As a general rule, if you each have a $1 million dollar umbrella policy prior to remarriage, that may be the combined coverage for both of you as a married couple — not $2 million as you might think — unless you make other arrangements.
Being sure that you and your spouse are protected by health insurance should be one of your top priorities. If you are both employed, you may find that you have expensive duplicate medical coverage. However, if your plan pays 80 percent and your spouse's plan will pick up the remaining 20 percent, you might have full coverage when the benefits are coordinated. Two policies may not be too many depending upon your current health needs and potential health "time bombs." Compare notes with each personnel benefits office to make the best arrangements for your family.
In addition, coverage for your children is important whether or not you are the custodial parent. Divorce Agreements generally address medical insurance responsibility for children. When either of you bring children to this marriage, you both need to know the existing ground rules on medical insurance.
Generally, the IRS treats a child as the dependent of both biological parents for purposes of their individual contributions toward medical expenses and reimbursements. It is important to know the answers to basic questions about the existing coverage. Which parent is responsible for maintaining each child's medical coverage, when does the obligation end, and do you need compliance assurance for coverage and procedures? Do you have current documentation that provides proof of coverage?
What are the payment, reimbursement, and deductible procedures? For instance, who fills out insurance forms? How have you agreed to pay for expenses that are not covered by the medical insurance such as elective procedures and for pre-existing conditions? What about necessary care that exceeds covered limits or for physical therapy or psychological counseling that may not be covered at all? Have you made arrangements for continued coverage in the event of death, disability, or change of current employment by the parent responsible for maintaining medical coverage for the children?
Provisions of medical insurance coverage for children in other households or for residential stepchildren is a gray area. Insurance policies may cover residential stepchildren if they are the income tax dependents of the remarried couple. Read the fine print about limitations, especially if the children are cared for in a joint physical custody arrangement.
Do you need additional life insurance to protect your new spouse? Probably. Are you able to designate a new beneficiary on an existing life insurance policy or have you already made legal commitments or promises? If your divorce agreement assigns your former spouse as the irrevocable beneficiary, that is a legally binding agreement. You can change the beneficiary, on paper, to your new spouse but all he or she will end up with is legal bills — and no insurance check. The former spouse will be entitled to file a lawsuit to collect under the terms of the divorce agreement.
For centuries, people have used insurance to protect their most valuable assets. Yet relatively few have sufficient disability-income insurance. For a 30-year-old, the risks of long-term disability before the age of 65 are considered to be about three times greater than the risks of death. In general, a person should have a disability policy that will replace 60-70 percent of gross income. The policy should kick in if you are unable to work in your current profession.
While many companies provide a disability policy for their employees, the coverage ends if you leave that job for any reason. It is a good idea to make your own arrangements and to pay the premiums on your personal disability policy.
NOTE: The insurance industry has recently gone through unstable times. You may gain some added assurance by buying all of your policies from an established company that has been doing business in your state for a long time.
Health Care Directives
While you are updating all of your insurance policies, consider preparing health care directives. A health care proxy, also called an advance medical directive, deals with the kinds of life-sustaining measures that are acceptable to you. This legal document can relieve your spouse and other relatives of a terrible burden and give you the peace of mind of knowing that you will be able to die with dignity.
Each state has it's own regulations concerning these directives. For a free copy of the official form for your state, send a stamped, self-addressed envelope to The Society for the Right to Die, Dept. NL, Suite 831, 250 West 57th Street, New York, NY 10107. If you already have a health care proxy, there are two issues to consider. First, is the health care proxy written for the state in which you currently reside? Second, who is the person designated to act as your proxy? Not all states automatically remove legal powers, previously designated to a spouse, upon completion of a divorce. If you do not want a former spouse to continue with health care proxy authority, make sure that authority previously given is properly revoked.
Use your portable Master File box while you are accumulating these pieces of financial information and to store copies of the completed policies and medical directives.
* Dr. Engel is the President of the Stepfamily Association of America. This article first appeared in Bride Again magazine, Fall 1999. Permission granted for use on the SAA web site by Bride Again magazine.