Life Insurance: A Couple's Guide To Joint Protection

Life insurance is a crucial consideration for married couples to ensure financial security and peace of mind. While it's not a one-size-fits-all decision, there are several factors that make having life insurance beneficial for both partners. Firstly, if one spouse is the primary earner, their sudden passing could leave the surviving spouse struggling financially. Life insurance provides a safety net, allowing the surviving partner to maintain their lifestyle and manage living expenses. Secondly, if the couple has shared debts, such as a mortgage, car payments, or student loans, life insurance can help the surviving spouse repay these debts without being overwhelmed. Additionally, life insurance can cover final expenses, such as funeral costs and medical bills, sparing the surviving partner from these additional financial burdens.

When considering life insurance, married couples have two main options: joint life insurance policies or separate life insurance policies. Joint policies cover both spouses under a single policy, often at a lower cost than separate policies. However, separate policies allow for greater flexibility, as each spouse can choose a policy that suits their unique needs and financial goals.

The decision to opt for joint or separate life insurance depends on the couple's specific circumstances and goals. Newlyweds without children may prioritize covering their mortgage and replacing lost income. On the other hand, couples with children may want additional benefits to cover education expenses and childcare. Ultimately, consulting a financial advisor or insurance agent can help married couples navigate the complexities and choose the best coverage for their needs.

Joint vs. separate life insurance plans

Married couples can opt for either 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 carefully before making a decision.

Joint Life Insurance Policies

A joint life insurance policy, also known as a dual life insurance policy, covers two people, usually spouses or domestic partners. It is typically chosen by couples who want to lower life insurance costs and protect their assets from taxes after death.

There are two types of joint policies: first-to-die and second-to-die (or survivorship) policies. In a first-to-die policy, the surviving spouse will receive the death benefit payout after the first spouse dies. In a second-to-die policy, the beneficiaries will receive the death benefit after both spouses have passed away.

Advantages of Joint Life Insurance Policies

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

Disadvantages 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 and will pay out a death benefit to the surviving partner if the insured individual passes away while the policy is in force. There are two main types of individual life insurance policies: term and permanent. Term policies cover a set period, usually 10 to 30 years, while permanent policies are designed to last a lifetime but may mature at a certain age, typically between 90 and 121.

Advantages 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

Disadvantages 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

When to get life insurance

Life insurance is a contract between you and an insurance company. You pay insurance premiums in exchange for coverage. If you die while the policy is in effect, the insurer pays out a life insurance death benefit to your beneficiaries.

You have children or other family members depending on your income

If your spouse or partner relies on your income, your death could leave them without a way to support themselves. The payout for a life insurance policy can help them cover living expenses and pay off debts like a mortgage so they can maintain their lifestyle.

You are a stay-at-home parent or spouse

Even if you don’t earn a traditional salary, you may still need coverage. Stay-at-home parents and spouses provide services that can be costly to replace, such as cleaning, cooking and child care. A life insurance payout can help your partner cover the costs of these services during a difficult time.

You are a parent or grandparent with dependents

Minor children, unable to provide for themselves, could be put at a major disadvantage if your income disappeared. The same is true if you help cover college costs or provide support for someone with a disability. A life insurance policy can help with these expenses for your dependents.

You co-own a business or debt

In most cases, debt does not pass to other people after you die. However, if another person co-owns or co-signs the debt, they could be left holding the bill. You can use life insurance to cover your debts if other people would be responsible for them, helping to pay them off in your absence.

You want to cover your final expenses

The median cost of a funeral with viewing and burial is $8,300. With a burial life insurance policy, you could pay your own way, keeping the burden off those who carry out your final wishes.

In general, it’s worth evaluating your life insurance needs after major milestones such as getting married, having a baby, switching jobs or getting a divorce. Remember that the younger and healthier you are, the more affordable life insurance is. Buying sooner rather than later can let you lock in a lower rate. Plus, the longer you wait, the more chance there is of developing a health condition that could affect your ability to get coverage.

Life insurance for newlyweds

Why Life Insurance is Important for Newlyweds

Life insurance provides financial security and peace of mind for both partners in the event of an unexpected death. It ensures that your spouse is protected financially and can maintain their standard of living, especially if you are the primary earner. It can also help cover any shared debts, such as a mortgage, car payments, or student loans, and final expenses like funeral costs and medical bills.

Types of Life Insurance Policies for Newlyweds

There are two main types of life insurance policies to consider: term life insurance and permanent life insurance. Term life insurance provides coverage for a specific period, usually 10 to 30 years, and is generally more affordable. Permanent life insurance, on the other hand, covers your entire life and includes a cash value component that grows over time. It is more expensive but offers lifelong protection.

Joint vs. Separate Life Insurance Policies

As a newlywed couple, you have the option of obtaining a joint life insurance policy or separate life insurance policies. A joint policy covers both spouses under a single policy, which can help lower costs. However, separate policies allow for greater flexibility and customization to meet the unique needs of each spouse.

Factors to Consider

When deciding on the amount and type of life insurance coverage, consider your income, lifestyle, financial obligations, and future goals. Consult with a financial advisor to navigate the complexities and find the right policy for your specific needs. Additionally, consider the following:

• Income replacement: Life insurance can replace the income of a working spouse, helping to maintain the standard of living for the surviving spouse.
• Retirement gap planning: Life insurance can be used to secure each other's retirement and contribute to individual retirement accounts.
• Debt and expenses: Life insurance benefits can help cover mortgages, cars, credit card debts, and final expenses like burial costs.
• Childcare and education: Proceeds from life insurance can be used for childcare and educational costs, or directed towards college savings plans.
• Peace of mind: Life insurance ensures that your loved one is financially cared for, reducing emotional and financial stress during a difficult time.

Tips for Choosing the Right Life Insurance

• Plan together: Include both spouses in the planning process to ensure peace of mind and a clear understanding of the coverage.
• Compare policies: Carefully compare the details of different life insurance quotes to find the most suitable option for your needs.
• Get a second opinion: Consult with a financial advisor or insurance agent to get a second opinion and explore all your options.
• Understand the requirements: Policies that require medical exams are generally less expensive, so consider this option if you're budget-conscious.

Types of life insurance policies

There are two main types of life insurance plans: term or permanent plans, or a combination of the two. Term insurance provides protection for a specified period, which could be as short as a year or as long as 20 years, or until the policyholder reaches a specified age. Permanent insurance, on the other hand, is designed to provide coverage for the entirety of the policyholder's lifetime.

Term Life Insurance

Term life insurance is generally more affordable than permanent life insurance. It provides coverage for a set number of years, paying out as long as the policy hasn't expired and premiums have been paid. Term life insurance is ideal for those who only need coverage for a certain number of years. At the end of the term, the policy may be able to be renewed at an adjusted rate, though this is usually done on a year-to-year basis.

Whole Life Insurance

Whole life insurance is a type of permanent life insurance that provides coverage for the policyholder's entire lifetime, as long as premiums are paid. Whole life insurance also includes a savings component that accumulates interest over time, which is why whole life policies tend to be more expensive than term life policies with similar coverage. The cash value of the policy won't affect the death benefit paid out, but if it grows to equal the death benefit amount by the time the policyholder reaches a certain age (usually 100 or 120), the insurer will terminate the policy and pay out the coverage amount.

Universal Life Insurance

Universal life insurance is another type of permanent life insurance that provides coverage for the entirety of the policyholder's life, as long as premiums are paid. It is sometimes called adjustable life insurance because it offers more flexibility than whole life insurance; for example, universal life policies allow the policyholder to increase or decrease the death benefit and even adjust or skip monthly premium payments within certain limits. Like whole life insurance, universal life insurance has a savings component, but unlike whole life, the interest rate for this component is not fixed and may change over time based on market conditions.

Variable Life Insurance

Variable life insurance is a riskier type of permanent life insurance. It consists of two parts: a fixed death benefit that will be paid out upon the policyholder's death, and a variable cash value that rises and falls based on payments and the performance of selected investments. The greater range of investment options means variable life insurance could provide a greater benefit to beneficiaries in the long run, but it also opens the policyholder up to much higher risk, fees, and costs than whole life or universal life policies.

Final Expense Life Insurance

Also known as funeral or burial insurance, final expense insurance is a type of whole life insurance that offers a smaller and more affordable death benefit designed to cover end-of-life expenses like funeral costs, medical bills, or outstanding debt. Final expense policies can be easier for older or less healthy individuals to qualify for than other types of life insurance.

Group Life Insurance

Group life insurance is a type of policy that is offered by a business owner to their employees or members of an organization. It can be provided as either term or whole life insurance.

Simplified Issue Life Insurance

Simplified issue life insurance is a type of life insurance plan that does not require a medical exam for approval. Instead, potential policyholders fill out a health questionnaire. This can allow for faster approval and coverage for healthy individuals who need a policy quickly.

Guaranteed Life Insurance

Guaranteed life insurance is a type of policy that does not ask medical questions and cannot turn down an applicant.

How much life insurance is enough?

The amount of life insurance you need depends on your financial goals, family situation, and income. It's recommended that you have at least ten times your annual income in coverage, but this may vary depending on your circumstances.

• Multiply your income by 10: This is a general rule of thumb that financial experts often recommend. However, it doesn't take into account other important factors such as debts, future expenses, or existing assets.
• Multiply your income by 10 and add $100,000 per child for college expenses: This formula takes into account the need to cover your child's education expenses but still doesn't consider other financial obligations or resources.
• DIME (Debt, Income, Mortgage, Education) method: This method provides a more comprehensive view of your financial situation by adding up your debts, income, mortgage, and education costs. However, it doesn't account for existing life insurance policies or savings.
• Replace your income and add a cushion: With this method, you calculate the amount of life insurance needed to generate an annual income that matches your current income. This approach ensures that your beneficiaries can maintain their standard of living without spending the principal amount.
• Years-until-retirement method: This approach involves multiplying your annual salary by the number of years left until your retirement. For example, if you're 40 years old and earn $20,000 per year, you would need life insurance coverage of $500,000 until you reach the age of 65.
• Standard-of-living method: This method is based on the amount of money your survivors would need to maintain their standard of living if you were to pass away. It involves multiplying your age-dependent annual income by a certain number of years. For example, if you're between 41 and 50 years old, you would multiply your income by 20, and if you're between 51 and 60, you would multiply it by 15.

When deciding on the amount of life insurance, it's important to consider your long-term financial obligations, such as mortgage payments or college fees, and subtract your existing assets. Additionally, think about future expenses, such as your children's education, and the potential growth of your income or assets. It's always better to have a cushion to ensure your family can maintain their lifestyle.

Frequently asked questions