Life Insurance: Covering Husbands, Wives, And Their Families

Life insurance is an important consideration for married couples, as it can provide financial security and peace of mind in the event of a spouse's death. There are two main options for couples: joint life insurance policies, which cover both spouses under a single policy, and separate life insurance policies, where each spouse has their own individual policy. Joint policies are typically cheaper and simpler to manage, but separate policies offer greater flexibility and can be tailored to each spouse's needs. When deciding on life insurance, couples should consider their financial situation, coverage needs, and personal preferences. It's also essential to compare policies from different insurers to find the best fit in terms of cost and benefits.

Joint vs. separate life insurance policies

Married couples can choose between separate life insurance policies or a joint life insurance policy. While a single life insurance policy will only cover one spouse, a joint life insurance policy will protect both. Both options have their pros and cons, so it's important to weigh them before deciding.

Joint life insurance policies

Also known as a dual life insurance policy, a joint life insurance policy covers both spouses. If you want to save money on life insurance and protect your assets from taxes after you pass away, a joint policy may be a good option.

There are two types of joint policies: first-to-die policies and second-to-die policies. With first-to-die joint life insurance, the surviving spouse will collect the death benefit after the first spouse dies. A second-to-die or survivorship policy is when the beneficiaries receive the death benefit once both spouses pass away.

Benefits of joint life insurance policies

• May lower overall life insurance costs
• Simplifies management with one policy
• Can be useful for estate planning and minimising taxes
• Provides financial security to the surviving spouse or beneficiary

Drawbacks of joint life insurance policies

• Payout structure might not fit all needs (e.g. second-to-die only pays out after both spouses pass away)
• If the marriage ends, the policy may become complicated to manage
• Limited flexibility compared to individual policies
• Coverage may be less than individual policies for the same premium
• Second spouse no longer covered in a first-to-die scenario
• If one partner has health issues, the cost for the healthier spouse may be higher than individual coverage

Separate life insurance policies

A separate life insurance policy, or single life insurance policy, will only cover one spouse. If that spouse passes away, it will pay out a death benefit to the surviving partner. You can choose from a term life insurance policy that provides coverage for a set time period (e.g. 10, 20, or 30 years) or a whole life policy that offers lifelong protection. By investing in separate life insurance policies, each spouse can focus on their unique needs.

Benefits of separate life insurance policies

• Greater flexibility in choosing different types of policies
• Can be tailored to individual needs and financial goals
• Each spouse has their own coverage, unaffected by changes in marital status
• Allows for higher coverage amounts per individual

Drawbacks of separate life insurance policies

• Typically more expensive than a joint policy
• Requires managing multiple policies
• No potential cost savings from a combined policy
• Individual underwriting might be more stringent and vary per spouse

First-to-die vs. second-to-die policies

Married couples can choose between two types of joint life insurance policies: first-to-die and second-to-die (also known as survivorship policies). Both options have their own advantages and disadvantages, which should be carefully considered before making a decision.

First-to-Die Policies

With first-to-die policies, the surviving spouse will receive the death benefit payout after the first spouse dies. This type of policy is suitable for couples where the surviving spouse will need financial support to cover expenses or maintain their standard of living after their partner passes away. It can also be useful if one spouse is the primary earner, or if the couple has shared debts such as a mortgage, car payments, or student loans.

Second-to-Die Policies

On the other hand, second-to-die policies only pay out the death benefit once both spouses have passed away. These policies are generally used for estate planning purposes, especially when there are significant assets involved. By delaying the payout until the second death, the death benefit can be used to cover estate taxes and other settlement costs, ensuring that beneficiaries receive the intended financial legacy. Second-to-die policies are often used by wealthier couples to reduce the estate tax burden on their heirs. Additionally, they can be useful for couples with special needs children, as the death benefit can help ensure ongoing care for the child.

When deciding between first-to-die and second-to-die policies, it's important to consider factors such as the financial needs of the surviving spouse, the size of the estate, tax implications, and the overall cost of the policy. Consulting with a financial professional or insurance agent can help couples make an informed decision based on their specific circumstances.

Pros and cons of joint life insurance

Pros of joint life insurance

Joint life insurance covers two people under a single policy and is usually taken out by married couples. It is a good option for couples who want to lower their life insurance costs and protect their assets from taxes after death. Here are some of the pros of joint life insurance:

• Cost-effectiveness: Joint life insurance is generally more affordable than two separate policies, as the premium for a joint policy is typically lower than that of two individual policies. This can be especially helpful if one person in the couple would be more expensive to insure due to factors such as smoking or a higher income.
• Covers both spouses: A joint policy ensures that both spouses are covered under a single policy, even if one of them is unable to secure individual coverage due to poor health or an underlying medical condition.
• Simplified management: With a joint policy, there is only one policy to manage, simplifying the process for the couple.
• Estate planning and tax minimisation: Joint life insurance can be useful for estate planning and minimising taxes. The death benefit can be used to pay off debts, such as a mortgage, and can be left to beneficiaries who are not part of the couple, such as children or nieces and nephews, without incurring federal income taxes.
• Financial security for the surviving spouse: Joint life insurance provides financial security to the surviving spouse, as the death benefit can help cover living expenses and other financial burdens.

Cons of joint life insurance

Despite its benefits, joint life insurance also has some drawbacks. Here are some of the cons:

• Limited flexibility: Joint life insurance offers less flexibility compared to individual policies. Each spouse may have different needs and goals, and a joint policy may not allow for the same level of personalisation as separate policies.
• Complications in case of divorce: If the marriage ends, managing the joint policy can become complicated. It may not be possible to divide the policy, and the couple would need to take out new individual policies.
• Lower coverage: The coverage amount in a joint policy may be lower compared to individual policies for the same premium.
• Payout structure: The payout structure in a joint policy might not fit all needs. In a first-to-die policy, the surviving spouse receives the death benefit after the first spouse's death, but the second spouse is no longer covered. In a second-to-die policy, the beneficiaries only receive the death benefit after both spouses have passed away.
• Health issues impacting cost: If one partner has health issues, the cost for the healthier spouse may be higher than individual coverage, as the premium is based on the overall risk of both spouses.

Pros and cons of separate life insurance policies

Married couples can choose to have separate life insurance policies or a joint life insurance policy. While a single life insurance policy will only cover one spouse, a joint life insurance policy will protect both. Here are some pros and cons of separate life insurance policies for couples:

Pros of Separate Life Insurance Policies

• Greater flexibility: Separate policies allow each spouse to choose from different policy types, such as term life, whole life, or universal life insurance, and tailor the coverage to their individual needs and financial goals.
• Higher coverage amounts: With separate policies, each spouse can have higher coverage amounts per individual.
• Individualized coverage: Separate policies are not tied to marital status, so each spouse has their own coverage, unaffected by changes in marital status.

Cons of Separate Life Insurance Policies

• More expensive: Separate policies typically require managing multiple policies and can be more expensive than a joint policy.
• More complex: Managing multiple policies can be more complex and require more administrative work.
• No combined policy savings: Separate policies do not offer potential cost savings that come with a combined joint policy.
• More stringent underwriting: Individual underwriting for separate policies might be more stringent and vary for each spouse.

When to get life insurance

Life insurance is a crucial safety net for your loved ones, and it's important to get it as soon as possible. The younger and healthier you are when you purchase a policy, the lower your premium will be. Here are some key moments when you should consider getting life insurance:

Before Getting Married or Having Kids

Although it may seem counterintuitive, buying life insurance before getting married or having children can be a smart financial move. Life insurance premiums are cheaper when you're young and healthy, so locking in low rates early on can save you money in the long run. By purchasing a policy early, you can take advantage of lower rates before developing any pre-existing health conditions that could increase your premiums.

After Getting Married

If your spouse depends on your income, life insurance can provide them with financial security in the event of your untimely death. It can help them cover living expenses, such as mortgage payments or rent, utilities, and groceries. Additionally, life insurance can also help with funeral costs, which can be substantial.

After Having Children

Having children significantly increases your financial responsibilities. Life insurance can provide peace of mind by ensuring that your children's education, daily living expenses, and future opportunities are not compromised if something happens to you. It can also help cover expenses related to raising children, such as daycare and schooling.

After Purchasing a Home

If you've recently bought a home, life insurance can protect your spouse from having to shoulder the entire mortgage burden alone. It can also help cover other shared debts, such as car payments or student loans, ensuring your spouse isn't overwhelmed by debt repayments if you pass away.

When You're Early in Your Career

Even if you're young and single, buying life insurance early in your career can be beneficial. Premiums tend to increase with age, so securing a policy while you're young can lock in lower rates. Additionally, as your career progresses, you may change jobs, and employer-provided life insurance may not be portable. Having your own policy ensures continuous coverage.

Frequently asked questions