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Cold Feet? Get Them Nice and Toasty With Divorce Insurance

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YOU MAY NOW KISS YOUR INSURANCE AGENT
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The Washington Post's Ezra Klein brings our attention to something we never knew we needed (or could even get) before: divorce insurance.

Klein writes:
WedLock, as it's coyly named, is a new type of casualty insurance that gives the unhappily married policyholder a payout after he or she is unhitched. It costs about $16 a month for every $1,250 of coverage. But to discourage people from signing up just prior to their divorce, policyholders must ante up for four years before the policy will pay out. It adds a premium of $250 per unit for every year the marriage survives beyond four. So if a policyholder who bought 10 units got divorced after 10 years, he or she would have handed over $19,188 and would receive a payout of $27,500. It's probably not worth getting divorced for, but the lump sum might salve some wounds, whether through lawyers, vacations or subscriptions to the Rhapsody Book Club.
He continues:
I'm hoping it's only a matter of time before divorce default swaps. Those of us who aren't involved in the marriage want a piece of the action, too. Plus, think of the benefit to the eagerly engaged if there was a liquid and properly incentivized market laying odds in the days before anyone said "I do." And though you could worry that the market would be mainly moved by insider trading, that could be a good thing: If the spread leaps up and one of the partners has no idea why, well, it might be time to start wondering who exactly knows something you don't...
Divorce default swaps, while amusing for high-minded journos to bandy about as a concept, might not be as crazy an idea as it seems on the surface. Consider this: Credit default swaps, as we know them today, were created by the infamous Exxon Valdez oil spill.

After a jury ruled that Exxon was responsible for paying $5 billion in punitive damages -- equivalent to one year’s worth of Exxon profits at the time -- the US Court of Appeals for the 9th Circuit later reduced the amount to $2.5 billion. That ruling was overturned in 2008 by the United States Supreme Court, which ruled 5-to-3 to limit Exxon Mobil's liability to $507.5 million, the amount of actual economic losses suffered by fishermen, landowners, and others affected by the spill.

Years earlier, in 1994, to protect the company in case the $5 billion award was affirmed, Exxon Mobil obtained a $4.8 billion credit line from JPMorgan.

JPMorgan, knowing that the Basel rules required banks to hold 8% of their capital in reserve against outstanding loans, wasn’t thrilled about tying up $384 million in the event the loan went bad. All sorts of swaps already existed at that time -- currency swaps, interest rate swaps -- but according to Gillian Tett’s 2008 book Fool’s Gold, Blythe Masters, a member of JPMorgan’s swaps team, hit upon the idea of the credit default swap as a way to allow the bank to sell the credit risk associated with the Exxon loan to the European Bank of Reconstruction and Development. The EBRD stood to gain a substantial return for taking on the risk of Exxon defaulting, while JPMorgan was able to keep more cash available for other things and greatly reduce its own risk by laying it off on someone else -- in essence, insurance to cover its loan to Exxon.

Of course, a bride- or groom-to-be could conceivably save him or herself the agony of divorce -- and the expense of a policy to insure the marriage -- by simply using the free "Divorce Probability Calculator" WedLock so generously offers prospective customers on its website:



Of course, you can always adjust the odds in your favor by moving to Massachusetts, where, according to Gregory Baer, author of Life: The Odds: And How to Improve Them, the divorce rate "is half that of Delaware and about a third of that in Arkansas; Nevada, not surprisingly, is the divorce capital of the nation."
POSITION:  No positions in stocks mentioned.

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