Advisor Today - July/August 2015 - (Page 29)
By Michael Smith
This product will follow the terms of a divorce decree and offer benefits if the payer becomes disabled.
ot every marriage is a match
made in heaven. Divorce has
become all too common and is
no longer the "scandal" it used to be.
It is not uncommon for a divorce
decree to require life insurance on the
spouse who is making settlement or
support payments. Should the payor
pass away, the life insurance can
ensure that child support, alimony
and other obligations are fulfilled.
But what if the payor becomes
disabled? Will he be able to continue
making the support payments?
Disability income (DI) insurance
is limited in its benefits. Group DI
offered through the employer typically
is limited to 40-60 percent of an
employee's income. Even if one were
to obtain individual DI coverage, it
usually only works in conjunction
with any group benefits and tops off
at 66 percent of income.
Yet a divorce decree assumes the
payor has access to 100 percent of
his income. If the payor has a 40-60
percent reduction in income due to a
disability, it is often very difficult to be
able to pay his own living expenses,
much less pay support or alimony.
The payor's option is to go to court
and ask for relief or reduction in the
payment obligation based upon his
current financial circumstance.
This is stressful, costly and will
open old wounds. The ex-spouse
recipient does not want to see any
reduction since it could cause her
to suffer financially. The recipient
would likely fight any reduction
with the same costs and stress, and
it would be like going through the
divorce all over again.
Enter Divorce DI
Recently developed is a DI product
that will follow the terms of the
divorce decree and provide benefits
should the payor become disabled.
Because this is a product that covers a
© Mark Bowden
specific problem, it can be issued and
can pay benefits in addition to any
group or individual DI one may have.
The payor could become disabled
due to illness or injury, collect
group or individual disability
benefits to cover his own expenses,
and have the Divorce DI pay the
support and alimony payments. The
payor is assured he is meeting his
divorce decree requirements, and
the recipient is assured that support
payments are coming in. There is no
need to fight things out in court.
Surprisingly affordable, it makes
sense to build this into a divorce
decree and purchase it along with
life insurance. It can be individually
customized to meet the needs of
most any divorce decree. The policy
can pay for alimony, child support,
medical insurance premiums,
tuition and other items the payor
may be obligated to pay.
Divorce DI is underwritten in fiveyear increments. Premiums during
those five years actually go down
because every time the payor makes a
payment to the ex-spouse, the overall
obligation is reduced. Think of it as
decreasing term life insurance.
Every five years, the payor is
re-underwritten, but because the
settlement obligations are lower, the
premium should be lower.
Divorce DI is underwritten with
modified guaranteed issue up to
who can sell
and become a
$1,000,000 of benefit. This means
that within reason, there should be
no exam or medical records needed,
and the policy is issued within days.
For divorce decree obligations over
$1,000,000, an exam and medical
records are likely to be needed.
Because this is so new, most
divorce attorneys, CPAs and other
advisors do not yet know about
Divorce DI. I believe it is in both the
ex-spouses' best interests to seriously
consider Divorce DI. Both attorneys
should structure coverage into the
design of the divorce decree much
like they do life insurance.
Who should own and make
premium payments and how benefits
are received can be negotiated
between the attorneys and written
into the divorce decree.
An advisor who can sell Divorce
DI could educate attorneys and
other advisors and become a referral
source for clients. I encourage you
to gather more information on this
topic and then contact a family
planning attorney you know and get
his opinion. My experience has been
Michael Smith is President of CPS
Horizon Financial, a full-service
Brokerage General Agency. He is also
the current Chair of NAIFA's Member
Benefits Committee. He can be
reached at email@example.com.
July/August 2015 | ADVISOR TODAY 29
Table of Contents for the Digital Edition of Advisor Today - July/August 2015
From The Editor
How Do You Create the Million-Dollar-Plus Practice?
Traits of Top Performers
The Business Benefits of a Pipeline Mentality
What Does It Mean to Act Ethically?
Variable Universal Life is Back
Sell More LTCI By Selling Less!
Overcoming the Most Common DI Objections
Mitigating Retirement Risks with Life Insurance
Creating Irreplaceable Capital
Closing the Gap
Financial Future Less than Rosy for Boomers and GenX
Estate Planning and Annuities?
Ignite Your Sales Potential
A Closer Look at BTID
Upholding the Tradition
NAIFA’s Candidates for Election
Addicted to Rejection
What is Keeping Your Senior Clients Up At Night?
Advisor Today - July/August 2015