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Divorce is never easy, especially when children are involved. Among the many important decisions that need to be made, ensuring your child’s health and financial future through proper insurance planning is one area that can easily be overlooked. Unfortunately, insurance mistakes made during the divorce process can leave children without the coverage they need or create financial headaches down the road. Let’s look at the top five insurance mistakes parents make during a divorce and how to avoid them.
1. Overlooking Health Insurance Coverage for the Child
One of the most common mistakes parents make during a divorce is assuming that health insurance will automatically stay the same. Divorce can change or disrupt coverage, especially if the child’s health insurance is tied to one parent’s employer. This disruption could leave your child temporarily uninsured.
How to Avoid It: It’s critical to address health insurance early in the divorce process. Make sure the divorce settlement clearly states which parent will be responsible for maintaining health insurance for the child and how any uncovered medical expenses will be shared. If one parent loses employer-sponsored insurance, ensure that alternative coverage (such as through the Affordable Care Act) is explored well in advance.
2. Failing to Secure Life Insurance for Child Support
Divorce settlements often include child support payments, but many parents fail to account for what happens if the paying parent dies unexpectedly. Without life insurance in place, the child’s financial security could be at risk.
How to Avoid It: It’s wise to ensure that the parent responsible for child support carries a life insurance policy with the child as the beneficiary. The amount of the policy should be enough to cover future child support payments and possibly other expenses, such as education. This way, the child is financially protected no matter what happens.
3. Not Including Insurance Costs in the Divorce Agreement
In many cases, parents forget to account for the cost of insurance premiums, deductibles, and out-of-pocket medical expenses when negotiating the divorce agreement. This can lead to disagreements later on about who pays for what.
How to Avoid It:Include clear language in the divorce settlement regarding insurance costs. This should cover not just who is responsible for providing insurance but also how premiums, deductibles, and any uncovered medical expenses (like dental or vision care) will be divided. Having these details spelled out can prevent future conflict and ensure that both parents contribute fairly to the child’s healthcare costs.
4. Letting Insurance Coverage Lapse After Divorce
Sometimes, parents mistakenly let their own life or disability insurance lapse after a divorce, thinking it’s no longer necessary. This can have significant financial consequences if the parent who is responsible for child support or providing for the child becomes unable to work or passes away.
How to Avoid It: It’s important for both parents to maintain adequate life and disability insurance even after the divorce is finalized. If one parent’s ability to provide for the child is compromised, it could have a long-term financial impact. Review your insurance needs with a financial advisor and update policies to reflect new realities, such as any changes in income, assets, or child support obligations.
5. Ignoring Special Needs Insurance for Children with Disabilities
If your child has special needs, standard insurance may not cover all of their healthcare or long-term care needs. Some parents fail to plan for the unique insurance and financial planning needs of a child with disabilities during divorce, which can create challenges later on.
How to Avoid It: If your child has special healthcare needs, it’s essential to explore supplemental insurance policies and ensure their long-term care is accounted for in the divorce agreement. Consider setting up a special needs trust to protect any government benefits they may qualify for, and speak to an attorney who specializes in special needs planning to ensure all bases are covered.
Divorce is an emotionally and financially complex process, but it’s important not to let insurance considerations fall through the cracks—especially when it comes to your child’s well-being. By addressing these common insurance pitfalls during the divorce process, you can avoid unnecessary complications and ensure your child’s health and financial future are secure.
For peace of mind, consider working with a divorce attorney and financial advisor who can help you navigate these challenges and ensure your child’s insurance needs are properly addressed in the settlement.
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