A Canadian's random thoughts on personal finance

Sep 13, 2010

There's no such thing as marriage insurance

Frank at Bad Money Advice has an article on marriage insurance. In this article, he goes to some lengths to determine whether marriage insurance is worthwhile. He does this by calculating the odds off a payoff and comparing with the amount of the payoff.

I think this analysis is misguided. I have a simpler one.

To begin with, you need to understand this: you never ever buy insurance on the hope that it will pay off. If you ever find yourself doing that, you've made a mistake, because then you're not buying insurance; you're making a wager, pure and simple. When you buy insurance, you should always be hoping it will never pay off. You should be hoping that your money will be wasted. When insurance pays off, it's because you rolled snake-eyes in the game of life and you could end up being ruined financially.

Insurance is meant to eliminate that risk of financial ruin. However, for this marriage insurance, the 1.63x payoff relative to the premiums makes this impossible. I can't think of anyone who can afford to pay $X for nothing, yet would be financially ruined by having to pay $1.63X during a divorce.

Therefore, this marriage "insurance" product is not insurance. It is gambling.