Data Set Ordered

The Texas Attorney General collects an enormous amount of data on child support in Texas. I've just ordered a data set for Lubbock, Texas to determine the magnitude of the problem of non-payment of child support there. I'll share my results with the readers to get their input on the best way to provide a reliable source of child support, even when the obligor cannot work.

Is this just a different way to collect child support?

There is over $100 billion in unpaid child support waiting to be collected. Much of that will never be paid no matter how much effort is put into the problem. State government and commercial child support collection agencies work hard to collect delinquent child support.

State governments collect child support for those who receive welfare benefits. That is because regular child support prevents child poverty and reduces government costs for poverty programs.

Commercial child support collection agencies collect child support to make money. They typically charge a 33 percent fee of child support collected for their services. That means for every $300 in child support collected, the agency earn $100, leaving the balance for the child.

Child support insurance is a way to prevent the need for collection efforts. Unemployment is the biggest source of unpaid child support. With this product, those who buy the insurance will never get behind in their child support, even though they’ve lost their jobs. Total cost of the program is the premium paid. Unlike collection services that charge a fee for child support collected, this program pays all due child support to the parent.

Does the obligor have to repay child support paid by the insurance?

The beauty of this program is that the obligor is not required to repay any child support paid on his behalf. The purpose of insurance is to pay a claim for someone when they cannot pay. The claim paid is not a loan, it is a benefit of the policy. There would be no requirement to repay the child support paid under the child support insurance product.

How does the claims process work?

The insurance program would be governed by the contract. One possible contract would provide payment of child support whenever child support stopped for any reason for any length of time. This is obviously an impossible contract to write. Why? The obligor would simply stop paying child support and would expect the insurance company to pay forever. No amount of money would be enough to pay the premium on such a policy.

Other conditions could be placed on payment of claims. One condition could be the involuntary unemployment of the obligor. He’s lost his job and qualifies for unemployment. In that case the insurance policy would pay his child support through the state disbursement unit which in turn would pay the money to the obligee. The insurance claim is paid through the state disbursement unit in order to give the obligor credit for any payments made.

Claims would be made by either the obligee or the obligor (or the child in some situations). The insurance company would approve or deny the claims and begin paying immediately. The policy language would assure both parents that even though there might be a time lag between the child support ending (due to unemployment) and the claim being paid, the total amount of unpaid child support would be paid. In other words, the obligor would never become delinquent in his support, and the child would not miss any child support.

Would my premiums go up if a claim is filed?

The insurance program would be governed by an insurance contract. That contract would specify if and when the premiums would increase. Most contracts would keep the premium the same even if a claim were filed.

There is no data on what the claims experience for a child support insurance product would be. Because of no data, it is impossible to say if premiums would increase if a claim is paid.

Calculating a Child Support Insurance Premium

Insurance companies look at the total cost of claims and divide by the total number insureds to calculate a gross premium. Then the administrative cost of the insurance is added in to the total cost of claims, a risk factor is calculated and a premium emerges.

If the total cost of all claims from a child support insurance program were $120,000 per year and 1000 people participated by paying premiums, the gross premium would be $120 per year. ($120,000 divided by 1000).

But the administrative costs must be added to the total claims to account for advertising, sales, claims adjustment and payment of expenses, an amount which is typically 30% of the claims cost. Thus, the administrative costs are $18,000, or a total of $138,000.00.

A risk factor could be calculated at 3 percent of cost of claims and administration, or a risk factor cost of $4,140, bringing the total cost of the program to $142,140.

Divided by 1000 premium paying customers, the total premium per customer is $142.14 per year.

Risk Management for Parents

Risk management is a fancy way of saying "insurance." A risk management program identifies the things that are important, determines a cost for them, then decides what could destroy or damage those things.

The risk manager looks at the cost of the things, the number of times the things could be damaged, and the range of damages that could occur.

If the thing is a car worth $5000, the risk management program would try to determine how often the car could be wrecked, and how much it would cost to repair it. Then an insurance product would be purchased to pay the anticipated damage.

Risk management could apply to financial needs of single parents as well. A single parent must have a reliable source of child support from the other parent. The risk management program would evaluate the cost of the continued flow of child support and the total cost of losing that flow for a temporary period of time.

The person paying the child support is subject to certain risks that can be determined fairly accurately. For example, every worker is subject to the risk of unemployment. The unemployment rate is now about 5% and seems to be rising. Thus, every person paying child support has a five percent chance of losing his job in the current year.

Risk management would estimate the cost of the loss (the temporary child support not paid while the obligor is unemployed) and the frequency of the loss (the risk of unemployment) and calculate an insurance premium that a person receiving child support could pay to avoid the loss of child support.

This is a concept of risk shifting. The person receiving the child support pays a small amount of money to shift the risk of not being paid child support to sometime into the future. If the need does arise, and the child support is not paid because of unemployment, the child support is paid by the insurance policy. Pretty cool, huh?

A neat concept, but not available to single parents today. I'm trying to change that.

Upcoming Marriage Event

TwoGether in Texas is the Regional Intermediary for the TwoGether in Texas Initiative. Texas will begin encouraging marriage this September by offering free marriage certificates if the couple takes an 8 hour course in conflict resolution and communication.

The Legacy Group will hold two meetings in Lubbock on July 29 to kick off the program in this area.

At 8:00 a.m. there will be a breakfast for marriage ministry leaders at the Gold Corral, 5117 S. Loop 289.

At 6:30 p.m. there will be a dinner meeting at Stella's Restaurant 4646 50th STreet for business leaders.

For more information contact Kim Youree, Program Director, 806-372-9700.

Neglected Area

Single parents have been abandoned by the financial services industry. In the four years I've been attempting to create a child support insurance product I've talked to the nation's largest and most prosperous insurance company. They honestly do not know what to do about it.

I am proposing to create an insurance policy that will pay for child support during the time an obligor is temporarily unable to pay child support. The reason could be a job lay off, a disabling injury, or any other temporary break in employment.

This seems like such an obvious opportunity that someone would have thought of it sooner...but it hasn't happened yet.

If you have an interest in such a product, please call me at 806-791-2400.

If you have an insurance company and you want to create and fund this product, call me.

The need is there

Single parents face the problem of collecting child support from the other parent who is temporarily unemployed. This creates a mini-crisis. When will the child support continue? Will the other parent ever get a new job? When will the support kick in?

The need exists for a financial product that will bridge the gap during a period of unintentional unemployment. That's where child support insurance comes in. We are creating a child support insurance product that will pay the obligor's child support during a time of unemployment -- without missing a single payment.

Call me for more information. David Moody 806-791-2400