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Divorce insurance - will it catch on?


You can insure against almost anything where you could be caught out by the unpleasantly unexpected. Besides policies such as home, motor and travel, there are more esoteric insurances - competition organisers offering a luxury car to anyone who scores two holes in one in a golf round can buy cover against the unlikely chance of that happening.

And wedding insurance – virtually unheard of a generation ago when I married – is now high up on the “must do” list for couples about to tie the knot. After all, with ceremonies and parties more complex and costlier than ever, cover against cancellation due to a main participant falling ill, or to a catering disaster, or to a whole list of other potential perils, makes sense.

Quotation MarksTo claim, you need at least four years of marriage and premium payments.Quotation Marks

But divorce insurance to pay out if the marriage or civil partnership goes wrong? My insurance textbook says you can't do it. You can't buy cover against anything you can opt to do. So private medical insurance won't cover pregnancy and childbirth – seen as a personal matter of choice – although it will pay for any complications (over which you have no control).

The textbook would list divorce cover under “moral hazard”. That's an insurance term which means you’re insulated from the costs of doing something you might freely decide to do. If you have a policy that pays cash out if you divorce, then you might be more inclined to undo the knot when your relationship is going through a sticky phase. There's also a public policy argument that says it is wrong to encourage people to break up in a society that values marriage and civil partnership.

But with the government now withdrawing legal aid from divorce cases, a US company which set up a divorce insurance plan late last summer has seen a gap in the market and plans to sell policies in the UK.

The US plan was set up after the firm's founder, a North Carolina entrepreneur, went though a ruinously expensive break-up of his own.

Here's how it works

Couples decide on how much money they might need to cover legal fees, moving expenses and the many other items such as now needing two sets of plates instead of sharing, should their relationship break down.

Then they buy units of cover for a monthly premium to equal the potential bill. In the US, each unit is valued at $1250 at a cost of $15.99 per month per unit. So if you want $12,500, you would need 10 units. The maximum US cover is $250,000 – 200 units costing nearly $3,198 a month.

To claim, you need at least four years of marriage and premium payments.

So after four years – and $7,675 in premiums, the unhappy couple could collect $12,500. (the UK version is likely to substitute pounds for dollars).

The premium price will never rise but once your marriage passes the four year mark, the value of each unit rises by $250 each year – the arithmetic is presumably based on the fact that while one in three marriages end in break-up, if you last the early years, the chances of staying together
increase substantially.

But once in the plan, you have to keep paying. If living in matrimony or civil partnership turns out to be so blissful that you cancel the premiums, the policy lapses without value.

Neither John Lewis Insurance or any other mainstream UK firm has plans to introduce this. And I seriously doubt if it will ever take off in the UK.

But what do you think – is this romantic or pragmatic? Is this a substitute for a pre-nuptial agreement? Will it catch on and do you personally want
it to catch on?

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John Lewis Insurance is a trading name of John Lewis plc. Registered office: 171 Victoria Street, London SW1E 5NN. Registered in England (No. 233462). John Lewis plc is an appointed representative of Royal & Sun Alliance Insurance plc. John Lewis Wedding Insurance is underwritten by Royal & Sun Alliance Insurance plc (No. 93792). Registered in England and Wales at St. Mark's Court, Chart Way, Horsham, West Sussex, RH12 1XL. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 202323). Calls may be recorded and monitored.

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