Divorce insurance: What is it and why India needs it too?

India can certainly boast about having lower divorce rates in the world despite having the second largest population in the world after China. As per statistics, the divorce rate in India is lower than 1%. That is, out of 1000, only 13 marriages in India end up in divorce.

This low rate of divorce may be attributed to society pressure and arranged marriages beside other factors. Divorce often puts the spouse, mostly men to bear financial burden on account of alimony. The term alimony refers to the financial assistance and monetary support provided by one spouse to another after a marriage ends in divorce. Thus, divorce insurance can provide the much-needed financial relief.

Divorce insurance is relatively a new concept and Safeguard Guaranty Corp, a North Carolina Insurance Company pioneered this idea in 2010.

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Safeguard`s divorce insurance policy is captioned “Wedlock.” This insurance which can be purchased in units, costs US$ 15.99 per unit with a coverage of $ 1250 per unit. Further, the Safeguard company provides an extra coverage of $ 250 per unit every year to the policy holder if the policy remains in force. The claim process is simple. Upon happening of the insured event, i.e., divorce, the policyholder needs to send the proof of divorce and the insurance company pays the lump sum value of the policy which the policy holder can utilize for divorce related expenses. However, there is a waiting period of 48 months to prevent moral hazard.

China, on the other hand pioneered the idea of “Marriage insurance.”

A Chinese insurer, namely, China Taiping Insurance Holdings developed a novel insurance product in 2016 captioned “Marriage Insurance.” This product can be opted by unmarried couple by paying a premium of US$ 90 for a maturity pay out of approx. US$ 1,600. This is subject to the condition that the couple is unmarried, and they are also required to submit non-marriage certification before the policy comes into force. Further, the applicant must tie the nuptial knot within three to ten years with his/her partner after the Marriage insurance policy comes into force.

Egypt is perhaps the only country in the world which is in the process of formulating a law on divorce insurance. The Financial Regulatory Authority has already prepared a preliminary study of the new unified insurance draft bill which is pending for approval from the Parliament. The bill states that a divorce insurance policy will be issued, under which women will be given twenty-five thousand Egyptian pounds if divorce takes place. The need for such legislation in Egypt is perhaps due to its high divorce rate. As per the study by the Egyptian Cabinet`s Information and Decision Support center, the divorce rate in Egypt is 40%.

India too needs divorce insurance to provide financial relief to the spouses on the happening of divorce. Insurance Regulatory and Development Authority of India (IRDAI) may formulate suitable regulations for divorce insurance taking into consideration the moral hazards that may be associated with such insurance. This would come as panacea to spouses for divorced related financial burden.

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