If I had to insure your marriage...
Suppose I bore the cost if you marriage didn’t work out. Suppose I freely agreed to take on this burden. Under what conditions would I, or anyone for that matter be willing to take on this kind of risk?
I’m interested in long lasting marriages. When I’m old, I imagine pushing my wife’s wheelchair while carrying a boastful smile on my face. I don’t want a quick fling. I want to watch her hair turn gray. I want to know what makes marriages last, and turning this desire into a business sounds like a great way to get paid to learn. Besides the carrot, I’m also motivated by the stick:
In trying to understand how marriage insurance could work, I learned a lot about how the current system works, and why a straightforward insurance product would be a challenge.
TLDR (promising news on the last few bullets)
Bad ethics. Marriage insurance effectively transfers money from devoted couples into the pockets of defectors.
Too expensive. What makes marriage insurance different from other forms is the big payout paired with a high chance of needing it. Insuring big ticket items works best when likelihood of needing it is low. With marriage, if the coverage is robust, it’ll be expensive. If it’s cheap, it’ll either only cover people who don’t need it, or it won’t meaningfully offset the cost of divorce.
Information asymmetry problems. Suppose the husband buys insurance against his wife. The insurance company would like to know about her since she’s the risk being insured against. Otherwise, it would be like buying flood insurance and refusing to tell the insurance company where your house is. The insurer would assume the worst and you wouldn’t get a good quote. The flood insurer can send someone to your home and see if you’re in a flood zone. With marriage, chances are you’d know if she’s hiding something simply by bringing the background check.
Legal considerations make prenups a better option. It’s possible that it’s not complicated, and it just seems like it is because I’m unfamiliar with the insurance industry. Laws around insurance don’t anticipate the possibility of marriage insurance and sometimes don’t make sense. EX: the policy you take out against your spouse becomes marital asset. The payout goes out to both of you. The high earner doesn’t disincentivize the other party from divorcing. It may have the opposite effect of making the low earner feel less guilty about divorce if a stranger will cover the divorce costs. If the goal is to protect the one with the assets, a prenup is the better option.
Selling to men is hard: if the insurance quote is high, they won’t marry; if it’s low, they might not need it. You need to convince them that it’s pro-marriage, which is hard to do without also telling them that it’s pro-marriage precisely because the insurance is incentivized to not pay out.
Selling to women is hard: The idea would be to give women a chance to prove that they’re good marriage material. The better version of this would be a dowry, not insurance.
Couples living together and pooling risk incentivizes divorce. A group of couples living in one building / plot of land might insure each other. This way, each person is incentivized to help the others stay together while secretly hoping the pool of money will be there for themselves. However, there are anti-social effects too. If Bob’s relationship is in trouble and he sees Alice from another couple is also in trouble, he’s incentivized to divorce first to take the pot of gold. Suppose you only get half the amount that’s been saved up till that point. The incentive to defect early is still there, but to a lesser degree. The best way to disincentivize defecting is for everyone to have their own personal savings for divorce, but then you don’t need the risk pool.
Religious solutions are promising. Hassidic Jews, Mormons, and others tend to have the most stable marriages. Instead of insurance, believers create some distance between their communities and the outside world and implement their own norms.
This is the tweet that got me looking into marriage insurance:
It interested me for several reasons:
I could get paid to learn what makes marriages successful.
If I’m wrong about what makes marriages work, I go out of business. I liked the skin in the game.
The concentration of resources that can be used for pro-social goals. Insurance companies can lobby government to pass pro-marriage laws, the way car insurance companies lobbied for mandatory seat-belt laws.
There’s a paradox with marriage insurance, but I figured there might be a way to overcome it, and maybe marriages insurance didn’t exist because arranged marriages didn’t exist. Here’s the paradox. To customers, marriage insurance hardly makes sense. The best insurance against divorce is commitment. However, if you’re an entrepreneur interested in creating stable families, it’s hard to imagine a better business to help make it happen.
If you think of other businesses that sell to couples, none of them would have a stake in your marriage working quite like an insurance company. Therapists get paid for their time. Lawyers make more money from divorce than from keeping families together. I don’t think lawyers want to break up families, but they’re certainly not paid to keep them together.
The 3-legged stool
The research below is organized in 3 sections:
Financial/product: What will it cost, and what’s covered?
Legal/regulatory: Will any laws get in the way? (hint: yes)
Marketing/sales: How to find customers and what’s the best way to sell to them?
1. Financial/product
Imagine I find someone who likes the idea of marriage insurance. Great! They’ll have two questions:
What will it cost?
What’s covered?
Since divorces are expensive, it’s reasonable to expect insurance against divorce to also be expensive. Let’s get a rough idea of the costs. About half of marriages end in divorce, and this number might be higher for people seeking insurance (due to adverse selection). Imagine selling hurricane insurance to customers who have a 50% chance of losing their home. The average divorce costs $15,000 to $40,000. This doesn’t sound like much, but it doesn’t factor in all the indirect costs involved, and future lost income. Divorcees lose about 70% of their net worth.
What would be covered?
The Balance lists some things even though there’s no such insurance product on the market:
Legal fees
Financial loss associated with divorce
Help with child support or alimony issues
Marriage or family counseling for psychological distress
Prior art
There’s one company that tried marriage insurance. SafeGuard offered a couple products but eventually ran into regulatory/financing hurdles (described later). One unit of insurance would cost $16 a month. Sounds cheap. To prevent people from abusing it, you had keep the policy for 4 years to get a payout. They also wanted to pay you for a successful marriage.
Why haven’t other companies tried? 3 likely culprits:
Weak market demand
Too expensive to operate
Regulations are too onerous
Pooling risk with 10 couples (not the same as this) 🏊♂️
Another way to look at insurance is pooling risk between multiple marriages. Suppose 10 couples decide to pool their divorce risk among themselves. What would it cost, and how much would they be able to cover? 15% of couples who married in 2000 divorced within 8 years. For simple math, let’s say 20% would divorce in 10 years. For your pool of 10 couples, you can expect 2 divorces. Let’s look at some scenarios:
10 couples paying for 10 years, 2 divorces:
$100/mo is in the ballpark of home insurance cost.
= $120,000 in the pool after 10 years.
= $60,000 per couple, if they both divorce at 10 years. This would cover most divorces, and might help pay for other costs associated with maintaining separate households.
10 couples paying for 3 years, 1 divorce:
$100/mo (as before).
= $36,000 after the 3 years.
All of the above goes to the one divorce. It’ll likely cover the cost of the divorce, but not the cost of maintaining separate households.
10 couples paying for 3 years, 1 divorce:
$300/mo (sounds like a lot, but it’s cheaper than rent in many places, and marriage is maybe the most important decision you’ll make).
≈ $100,000 after 3 years.
It looks like a good payout. Suppose you had a 3 yo child at the end of the 3 years. So that’s 15 more years till the child is 18. If that $100,000 gets spread across those 15 years that’ll be over $6,000/mo or about $500 per month. Paying $300/mo for 3 years to get $500/mo for 15 years sounds like a good deal if you’ll need it. However, if all that money went just to feeding the child, it would pay for $5 per meal for 3 meals a day. You’d still have to pay for childcare, health insurance, transportation between households, and paying both your rent and your ex’s rent.
How to make the risk pool work (and why it might not)
Paying even $300/mo into a risk pool may not help offset the costs as much as you might think. You can’t put a price on love. Couples that stay together tend to be wealthier and their children are much better off. Instead of treating people like individuals, what if they were treated as a group? Suppose the 10 couples lived together. They can help each other with childcare, taxes, etc. More contact means they stand a chance of helping each other work through their differences. They know that $300/mo of their hard-earned money is on the line if they don’t help their neighbors. Suppose there’s a bad spouse in the bunch. The others will be able to cover it. They’ll also become even more determined to make sure they don’t have to pay out again. This might make everyone extra nosy, but maybe it can work.
However, there are anti-social effects too. If Bob’s relationship is in trouble and he sees Alice (from another couple) is also in trouble, he’s incentivized to divorce first to take the pot of gold. Ok, suppose the payout is only half the pot of gold. The incentive to defect early doesn’t go away. It only diminishes. The equilibrium seems to be for every person in the risk pool to contribute as much into the pool as they’re allowed to take out. But then there’s no need to have a risk pool. A piggy bank would do the job.
I think there could be something about having a small community insuring each other against divorce. Maybe I’ll think of some way to make it work.
2. Legal/regulatory
SafeGuard started with one policy and later pivoted to offering a different policy. Here’s the two:
Wedlock:
This was the first product. The policy only paid out in the event of divorce. If the marriage was unsuccessful, there was no reward. Since this product was seen to encourage divorce, it was both bad business and difficult to sell to customers. Because it insured (usually the man) against divorce by his spouse, it was casualty insurance.
Marriage Assurance:
They pivoted to this second product. This one would reward successful marriages. This made the policy more expensive because not only were you buying insurance, you were also putting money away in a piggy bank.
With this policy you’d get your payout if you were still married after 25 years. I’m uncertain about why it had to be a life policy, but it was. Any life policy over 20 years needs to have the cash value the entire term. Further, any insurance policy that has a cash surrender value is marital property — or at least that's the case in community property states like California. These laws could make the policy 2x more expensive because the payout would be split between both husband and wife. In short, these factors hurt the economics of the product.
Risk pool / religious solutions:
Since straightforward insurance policies didn’t work out, I figured there could be a way to get insurance by other means. The possibility of getting paid to help married couples was just too tantalizing for me to give up.
I couldn’t think of a way to make a risk pool work yet so I didn’t look into any relevant laws yet. Religious solutions sound interesting and they have to be legal because we see them playing out in the U.S.
3. Marketing/sales
Suppose the mechanics of the business can be made to work. What market segment might be the most attractive? How might I sell to them?
Divorcees
SafeGuard aimed for this market. The market is likely older, may have more assets than younger people, and have fewer years of life left. Further, there’s a chance they won’t have kids with their second spouse. This market segment is attractive because they’re more realistic about the possibility of divorce so they’re easier to sell to. However, their risk of divorce is higher than average (over 60%).
Boomer aesthetic may be the best way to sell to this crowd.
Never-married
There’s a risk of unintended consequences with the never-married. Potential customers might ask for a quote, with no intention of buying. They may use the insurance quote to help them decide if marriage is a good idea in the first place. However, lots people do actually want to get married and insurance may help them make the jump. According to Business Insider: “in 1962, 90% of 30-year-olds had been married at least once...In 2018, only 54% of 30-year-olds had been married”. If arranged marriages take off, it’s possible that marriage insurance would also become more attractive.
To the younger crowd, I have a few ideas:
Feminine
Academic / rationalist
Masculine and to-the-point
Feminine
Suppose the product is sold to women, though paid for by men. If this were to work, how would it work? Religious women, for example, may be able to advertise themselves as better marriage material. The problem is they do this by competing on price. The picture that comes to mind is a dating site where a dollar value is attached to each woman. If this isn’t objectifying, I don’t know what is. If she was to advertise any price at all, it feels better to advertise a higher number than a smaller one. In short, the better version of this would be a dowry.
Another way it be sold is for women who’ve talked to their boyfriends about marriage, but their boyfriend is still holding out. She can tell him that there’s a way to reduce his risk if he’s still on the fence. However, by proposing this she’d be bringing up the unspeakable: divorce is on the table.
Academic/rationalist product
An academic design could appeal to rationalists who would be easier to convince on purely logical grounds. Maybe one way to convince them is to point out that everyone would be better off if everyone bought this kind of insurance, despite it being bad for each individual. The insurance company can use the money to lobby for pro-social marriage laws.
Masculine
Maybe it’s just me, but I would be embarrassed if someone saw me looking at a website with flowery wedding dresses. Wedding rings are ok. A simple, even bland website may be best.
Conclusion
I haven’t found a reasonable way for me to take on the financial burden of your marriage, but I’ve learned a lot. It was interesting to take imperfect versions of marriage insurance and accidentally improve them into solutions that either exist today, or existed in the past.