Everything Married Couples Need to Know About Life Insurance
Officially deciding to get married and legally partner with someone might seem like the biggest decision youâll make. But in reality, itâs likely the easiest one compared to all of the other details that need to be figured out after you get engaged. And when it comes to finances, life insurance should be part of the conversation.
What Is Life Insurance?
Life insurance is a contract between you and an insurance company designed to provide financial protection for your loved ones if you unexpectedly pass away. Throughout the contract, you make a regular payment to the company in exchange for a certain dollar amount of coverage, and if you have an active life insurance policy when you die, a life insurance company will provide a tax-free sum of money to the beneficiary you selected.
âCouples often combine their finances as newlyweds, making both spouses financially responsible for major shared purchases and debts, like a mortgage or credit card debt. Purchasing life insurance helps couples make sure their partner is financially taken care of should something unexpected happen to one of them," says Matt Burke, senior manager at Policygenius.
According to Jessica Lepore, founder of Surevested, "Life insurance is the greatest gift you can give your significant other.â But before you purchase life insurance, you may have a few questions. Read on to learn more, from the benefits to the cost to how much coverage to purchase.
Benefits of Life Insurance
The benefits of having life insurance truly outweigh any cons, according to Lepore. âThe biggest pro, in my opinion, is that life insurance provides the ultimate security blanket and peace of mind for couples and families,â she says. âKnowing you can continue to financially live your lifestyle if something were to happen to you or your spouse, is truly the greatest gift you could give. Life insurance is highly customizable, and policies offer different benefits and coverage amounts to meet your unique needs and budget."
Far beyond a simple payout, life insurance can ensure that you can continue to live in your home, make mortgage payments, support yourself or your children, cover final expenses and continue to plan for your futureâwithout the pressure of now being a single income household. But Lepore notes that a potential con could be the discussion and decision to purchase it. âDiscussing life insurance with your partner for the first time could be uncomfortable,â she admits. âHowever, the same way you discuss joint bank accounts or savings, you should discuss this type of protection with the same importance.â
Although you hopefully wonât need to take advantage of this type of policy for years to come, the financial security that having it offers spouses is something you can immediately feel. âKeep in mind, regular premium payments for your policy will add a new line item to your budget, but it can be well worth it to secure financial peace of mind,â adds Burke.
Managing director of Northwestern Mutual Nikki Stokes agrees, saying, âIn marriage, you and your spouseâs financial lives often become intertwined, and you depend on each other emotionally as well as financially. Life insurance can provide peace of mind, knowing who you love most will be taken care of.â
Cost of Life Insurance
Life insurance can be paid both monthly or annually and the price mostly depends on the policy type and coverage amount. Other factors that help determine the price of your policy include your age, health, and gender. Term life insurance policies could be as little as $20 a month while more comprehensive, permanent options are generally a bit more according to Lepore. âTerm policies offer a predetermined amount that is paid out if the policyholder passes during the policy period,â she explains. âWhole life policies are active for your whole life and usually have something called cash accumulation, meaning it accumulates money from your payments that you could borrow from at a later time if needed.â
Request quotes from an independent insurance agent before purchasing life insurance.
Marguerita Cheng, chief executive officer of Blue Ocean Global Wealth, gives her own personal experience as an example: âAs a preferred non-smoker, I purchased $750K of convertible 20-year term life insurance at age 38 for $37 per month,â she shares.
Types of Life Insurance Policies
Life insurance seems complicated, but it generally boils down to two options: temporary or term life insurance and permanent life insurance.
Temporary or Term Life Insurance
Term life insurance offers a death benefit for a fixed amount of time, which is the term. âIf you pass away during the term, then your beneficiaries will receive the death benefit,â explains Stokes. âAfter your coverage expires there is no death benefit paid out once you pass.â However, there are different types of term life insurance:
- Annually renewable term life insurance: This type typically lasts until you cancel your policy, or until you reach a certain age. âWith an annually renewable policy your premiums are based on your age and health when the policy begins, but those premiums increase over time,â says Stokes. âAnnually renewable term life insurance is usually the least expensive life insurance you can buy, though it does get more expensive as you age.â
- Level term life insurance: Level term life insurance gives you more certainty over the cost of your premiums, as they remain level for the length of your policy. âOften, level term life insurance is sold in ten-year and 20-year terms,â she adds. âOnce the term ends you stop paying and no longer have coverage.â
Permanent Life Insurance
Permanent life insurance covers you for life and your beneficiaries receive the death benefit no matter when you die. âPermanent life insurance also accumulates cash value that can be accessed as a living benefit at any time for any need,â she said. âAlthough accessing the cash value does reduce your death benefit.â Different times of permanent life insurance include:
- Whole life insurance: This is the most straightforward form of permanent insurance, according to Stokes. You pay a fixed monthly or annual premium for a guaranteed death benefit and coverage lasts your entire lifeâeven after you are done paying the premiums. âYour cash value is guaranteed to grow and with annual dividends, it can grow faster,â she adds.
- Universal life insurance: Universal life insurance allows you to build cash value but it provides more flexibility in the amount you pay in a premium and your death benefit. âYour cash value is not guaranteed to grow, but you do have the ability to accumulate more cash value because of the flexibility in premiums,â she says.
- Variable universal life insurance: This insurance gives you more control over your cash value by allowing you to allocate it toward a wide variety of market-driven subaccounts. âLike universal life insurance, the ability to gain more cash value exists because of the premium flexibility as well as the investment performance of the subaccounts,â Stokes says. âHowever, just like regular market-based investments, your cash value could also decline.â
When to Purchase Life Insurance
According to our experts, even if you and your partner are young and healthy, the earlier you start thinking about getting life insurance the better. Plus, life is completely unpredictable. âYou want to be certain that a medical incident wonât prevent you from getting coverage in the future,â says Stokes. âAdditionally, most insurers allow you to add a benefit at younger ages that gives you the right to buy more insurance without having to take an additional health exam later. Locking in your health status is a key reason to buy life insurance while you are young.â
The younger you are, the cheaper your premiums are likely to be.
And the earlier you begin talking about it during your engagement or first years of marriage, the more comfortable you will feel making this important decision. âStarting the conversation with your fiancĂ©, spouse or partner should go hand in hand with your discussions about any other financial decisions you make together,â adds Lepore.
How Much Life Insurance to Purchase
The death benefit amount that young couples âneedâ varies depending on their personal situations. âYou want to come up with a number that takes into consideration your salary, assets, and any debts you have (like credit cards, student loans, or a mortgage) as well as how much it costs for you to continue living your same lifestyle,â Lepore explains. âPeople take out policies for many different reasons and over the years, those reasons will change as your life changes.â
Cheng also agrees that every situation is different so she advises her clients to take three factors into consideration when trying to determine the amount of insurance needed:
- Needs-based. How much would my loved ones need in the event of my premature and untimely death?
- Goals-based. How much would my family need to reach their financial goals, especially if I am no longer there?
- Legacy. What are you hoping to leave behind to someone?
âSomeone explained it to me, âLoans/liability and loved ones,ââ she says. âI say at least enough insurance to pay off outstanding loans and liabilities as well as burial costs. You don't want loved ones to experience emotional and financial stress.â
Since there isnât a clear-cut answer, Stokes also offers this general rule to consider: âGet at least ten times your salary in a death benefit.â