How To Get Life Insurance For Your Husband

Life insurance is an important consideration for married couples, especially if they have children or shared financial responsibilities. It can provide financial security and peace of mind, knowing that your spouse will be taken care of if something happens to you. When deciding on life insurance, there are a few options to consider: separate or joint policies, and different types of policies such as term or whole life insurance. It's also essential to review and adjust your coverage over time as your circumstances change. Obtaining consent from the insured person and understanding the legal and ethical implications are crucial steps in the process.

Joint vs. separate life insurance plans

When it comes to life insurance, there are a few options to consider: joint first-to-die, joint last-to-die, or separate insurance plans. Each option has its advantages and disadvantages, and the best choice depends on individual circumstances and preferences.

Joint Life Insurance

Joint life insurance covers two or more lives under a single policy. It is commonly chosen by couples who want to ensure they are jointly protected. In the context of a couple, there are two types of joint life insurance: joint first-to-die and joint last-to-die.

Joint First-to-Die

In this type of policy, the full insurance coverage amount is payable upon the death of the first insured individual. The surviving partner, who is usually the beneficiary, receives the death benefit. This amount can be used to cover financial needs such as mortgage protection, debt repayment, or replacing lost income. The policy generally expires after the claim is paid, but the surviving partner may request continued coverage.

#### Advantages of Joint First-to-Die

• Insurability privilege: The surviving insured can request continued coverage without undergoing new medical underwriting, although it will be more expensive.
• Double payout on simultaneous deaths: Some companies offer an additional coverage amount if both insured individuals die together or within a short time of each other.

Joint Last-to-Die

This type of policy pays out only after both insured individuals have passed away, regardless of whether the deaths occur simultaneously or years apart. The chosen beneficiary, often the children, receives the death benefit as long as it is within the policy term.

#### Advantages of Joint Last-to-Die

Suitable for couples with no significant financial obligations on the surviving spouse: The coverage can be used for final expenses or to leave a legacy for children or other dependents.

Advantages of Joint Life Insurance (Both Types)

• Cost-effective: Joint life insurance is generally less expensive than taking out two separate policies, making it a good option for those on a tight budget.
• Various payout options: Joint policies offer different claim payout options to suit varying needs.
• Tax benefits: The premium paid and benefits received are typically covered under tax provisions.
• Rider availability: Joint policies can be enhanced with riders, providing additional coverage.
• Easy maintenance: Since only one premium needs to be paid, it is simpler to manage than separate policies.

Disadvantages of Joint Life Insurance (Both Types)

• Limited personalisation: Joint policies offer less flexibility in terms of coverage amount and length, which must be the same for both insured individuals.
• Single payout: Joint life insurance pays out only once, whereas separate policies provide double the coverage with independent payouts.
• Difficult to split after divorce: Converting a joint policy into separate ones with equivalent coverage may be challenging, and one may need to apply for new insurance.

Separate Life Insurance Plans

Separate life insurance plans, also known as single life insurance, cover only one individual per policy. Each partner applies for and obtains their own policy, which can be customised to their specific needs. This allows for different coverage amounts, lengths, and beneficiaries. If one spouse passes away, the beneficiary receives the payout, and the surviving spouse continues to have coverage.

Advantages of Separate Life Insurance Plans

• Flexibility: Separate plans allow for personalised coverage amounts, lengths, and beneficiaries for each spouse.
• Continued coverage: Even if one spouse passes away, the surviving spouse remains insured and covered under their own policy.
• Independence: Separate policies provide independence in terms of coverage and the ability to make changes without the other spouse's agreement.

Disadvantages of Separate Life Insurance Plans

Higher cost: The premium for two separate policies is typically higher than that of a joint policy.

Both joint and separate life insurance plans have their advantages and disadvantages. Joint life insurance is cost-effective and provides various payout options, but it lacks flexibility in terms of personalisation and only offers a single payout. On the other hand, separate life insurance plans offer continued coverage, flexibility, and independence but come with a higher price tag. The best option depends on the couple's specific needs, budget, and preferences.

Insurable interest and consent

Life insurance is an important consideration for couples, whether married or de facto, as it ensures that the surviving partner is financially secure in the event of their spouse's death. When taking out a life insurance policy, it is essential to understand the concept of insurable interest and consent.

Insurable interest is a fundamental requirement when purchasing a life insurance policy on someone else. It ensures that the policy owner has a financial stake in the insured person's continued well-being and would suffer financial hardship if they were to pass away. This requirement is in place to prevent fraud and moral hazards, such as situations where a policyholder might benefit financially from causing harm to the insured.

Consent is also crucial, and the insured person must give their consent for the policy to be valid. This consent is typically given by signing the life insurance application or policy, or it may be obtained through a phone interview conducted by the insurance company with the person buying the insurance or the beneficiary.

Examples of Insurable Interest

Insurable interest can be observed in various scenarios, such as between working and stay-at-home parents. The working parent might take out life insurance on their stay-at-home spouse because their loss would lead to financial strain. Similarly, the stay-at-home parent could insure the working parent, as their death would impact the family's financial stability.

Insurable interest also extends to business contexts. For instance, partners in a law firm might insure each other to protect against potential losses and ensure business continuity. Corporations may also obtain life insurance on key employees, as their death could significantly impact the company's performance.

Types of Insurable Interest

Insurable interest can be economic or sentimental. While economic interest relates to financial dependence, sentimental interest is based on love and affection and is typically recognised in relationships by blood or marriage. For example, according to Pennsylvania law, if individuals are related by blood or marriage, their insurable interest can be based on love and affection alone. However, if they are not related, a financial interest in the insured person's continued existence is necessary.

It is important to note that insurable interest is not automatically recognised in all family relationships. For instance, stepparents and stepchildren might not be automatically recognised as having insurable interest in each other and would need to prove financial dependence.

Proof of Insurable Interest

When applying for life insurance, proof of insurable interest is required. In direct relationships, such as those through blood, marriage, or adoption, insurable interest is generally easy to establish based on the relationship status. However, in business partnerships or other non-direct relationships, additional documentation may be needed to prove financial dependence or the potential for financial loss.

Consent of the Insured

As mentioned earlier, the insured person's consent is essential for a life insurance policy to be valid. This consent can be given through a signed application or policy, or it may be obtained through a phone interview. Without the insured person's consent, the policy cannot be purchased, as insurable interest and consent are both necessary to meet the requirements of the insurance company and ensure the policy serves its intended purpose of providing financial security.

Policy ownership and beneficiaries

A life insurance policy generally involves three key parties: the owner, the insured, and the beneficiary. The owner of a life insurance policy has a critical role and holds control over it. They are responsible for its continued payment and upkeep. The insured is the person whose life is covered by the policy. Should they pass away while the policy is active, their beneficiary receives a payout. The beneficiary is the person or people designated to receive the payout (or death benefit) when the insured dies.

Who Can Own a Life Insurance Policy?

You don’t need to be the insured on the policy to be the owner. Depending on the needs and specific situation, various entities and individuals can own a life insurance policy.

Individuals: Adults who are of legal age (usually 18 or older) and have the mental capacity to understand the terms of a contract can own policies on themselves or others, like family members, to whom they have an insurable interest.

Trusts: Trusts can be set up to own life insurance policies, often as part of estate planning. This can provide control over the proceeds and may offer tax advantages.

Businesses: Companies may own policies on key employees, partners, or shareholders. This can be part of succession planning, employee benefits, or agreements between business partners.

Charitable Organisations: Some people choose to make a charity the owner of a life insurance policy, which can be part of charitable giving strategies.

Spouses and Family Members: Cross-ownership between family members, such as spouses owning policies on each other, is also common.

Policy Owner vs Insured

In a life insurance policy, it’s common for the owner and insured to be the same person, but this isn’t always the case. The owner has the right to name or change beneficiaries, transfer ownership, and receive the right to cash value and dividends, if applicable. They are also responsible for paying premiums. If the insured is also the policy owner, they will have all the rights and responsibilities associated with policy ownership.

Designating Beneficiaries

It’s also common for the policy owner and beneficiary to be the same person. But many times, people buy a life insurance policy on themselves for the benefit of someone else. If you don’t specify a beneficiary, the death benefit goes through probate to settle your estate. Always name contingent beneficiaries as a backup if you and your primary beneficiary die simultaneously. Listing minor children as beneficiaries can create legal complications.

Cross-Ownership with Your Spouse or Partner

To avoid the delays and costs involved with distributing life insurance benefits through your estate, you could list your spouse or partner as the policy owner – and vice versa. If you do this, the proceeds of your insurance go directly to them without any administration costs. But there are some potential downsides to this type of cross-ownership. For example, you can’t leave part of your insurance payout to other family members, like children or grandchildren, or to any charities.

Joint Ownership with Your Spouse or Partner

Joint ownership means that you and your partner are both owners on each other’s policies. It provides the same benefits to each party as cross-ownership but prevents either owner from giving policy instructions without the other’s agreement. You own the policy as joint tenants so, if one owner passes away, the ownership of the policy simply passes to the surviving owner. But if you break up, you may not be able to change your policy or remove them as an owner without your ex-partner’s permission.

Premium payments and policy maintenance

The financial backbone of your life insurance policy is the premium, which is a regular payment that keeps your coverage active and ensures your beneficiaries are protected. The cost of a life insurance policy varies for each person and depends on factors such as age, health, policy type, and coverage limits.

Payment Methods

Life insurance companies commonly accept premium payments via bank transfer or check. Some companies allow you to use a credit card, but only for your first payment or with an added fee. Cash is never accepted as a form of payment.

Payment Frequency

Most insurers offer monthly, quarterly, semi-annual, or annual payment options. Annual payments can often lead to savings as insurers charge less due to reduced processing fees.

Grace Periods and Lapses

If you miss a premium payment, the consequences depend on whether you have a term or permanent policy. Both types have a grace period during which the policy remains active despite missed payments. This is typically 30 days from the payment due date. For term policies, failing to pay within the grace period usually results in policy lapse and termination of coverage. Permanent policies, which include a cash value component, may use this value to cover missed payments and prevent policy lapse.

Saving on Premiums

• Opt for annual payments.
• Start early as younger applicants are generally seen as lower risk.
• Embrace a healthy lifestyle and make improvements such as regular exercise and a balanced diet.
• Quit smoking as tobacco use is a significant factor in premium calculations.
• Leverage employment benefits as group life insurance policies through your employer might offer more competitive rates.
• Adjust coverage as your needs change. As financial responsibilities decrease, you might not need as much coverage, leading to lower premiums.
• Limit risky behaviors such as motorcycle riding or rock climbing, which can inflate your premiums.

Riders

Life insurance riders, or endorsements, are designed to add certain policy benefits to meet your specific needs. Common life insurance riders include:

• Long-term care rider
• Term conversion rider
• Waiver of premium rider
• Terminal illness rider
• Disability income rider
• Accidental death benefit rider

Riders typically add to your monthly premium but allow you to tailor your coverage to your specific needs and provide protection in case of specific conditions or occurrences.

Financial planning for the future

Income Replacement

The core purpose of life insurance is to provide income replacement for your loved ones in the event of your untimely death. This is especially important during your core earning years, typically between the ages of 35 and 55, when your income is crucial for supporting your family and maintaining their standard of living. By having life insurance, you can ensure that your loved ones will still have the financial means to pay the mortgage, cover funeral expenses, and maintain their quality of life.

Education Funding

Life insurance can also be leveraged to fund your children's education. By choosing a policy with a cash value component, you can build up a tax-advantaged savings vehicle that can be used to pay for tuition and other education-related expenses. This approach may offer additional financial aid options and grants that are not available with traditional education savings plans. However, it's important to note that building sufficient cash value within the policy may take a long time or require a high rate of return.

Retirement Planning

Life insurance can be a valuable component of your retirement planning. The cash value of a permanent life insurance policy can provide you with tax-free income during your retirement years, supplementing your pension or Social Security benefits. This can be especially beneficial if you anticipate higher tax rates in the future to fund underfunded government obligations. Additionally, some modern policies offer benefits for long-term care, providing additional financial support during retirement.

Estate Planning

Life insurance plays a crucial role in estate planning, ensuring the efficient transfer of wealth to your heirs. It provides liquidity to your estate, covering expenses and charges that may arise. By using an irrevocable life insurance trust, you can also mitigate potential estate taxes and ensure that your wealth is passed on to your family in the most tax-efficient manner. This is particularly advantageous for high-net-worth individuals who may not need traditional life insurance but want to maximize the value transferred to their beneficiaries.

Business Continuity

Life insurance can also be used to ensure the continuity of a business in the event of the death of a partner or key employee. By establishing buy-sell agreements funded by life insurance, you can facilitate a smooth transition and ensure that the business is passed on to those with a vested interest in its success. This is especially relevant for small businesses or partnerships where the loss of a key individual could have a significant financial impact.

When considering life insurance as part of your financial planning, it's important to seek professional advice to ensure that the policies you choose align with your specific goals and circumstances.

Frequently asked questions