If you’d like to leave your partner in stable financial condition in the event of your untimely death, it’s smart to purchase a life insurance policy for both people in a marriage.
When one of you is a stay-at-home parent or full-time student
Even if one of you isn’t working, you’ll need to acknowledge the non-monetary contribution to the household by thinking about the things they do day-to-day to support the family. If the non-working spouse dies, you won’t need to replace their income, but you will need to hire help.
Life insurance is a safety net that helps create financial stability in a difficult time. You’ll need to purchase a policy for each person in the marriage that’s big enough to cover funeral and burial expenses, future income, debt repayment, and the educational needs of any children you support.
If a stay-at-home parent dies, the surviving parent needs to continue working to support the family. It may be necessary to hire a full-time nanny, housekeeping service, and personal assistant to keep the household running smoothly.
When you and your partner don’t have children
If you plan to start a family soon, it’s smart to purchase life insurance in an amount that will support the surviving spouse and children.
Take a close look at your current financial situation. Could the surviving spouse take over the financial obligations of your household with the money they currently bring home? Consider debt, as well. If one or both of you have significant credit card bills, a mortgage, car payments, or personal loans, it’s a good idea to purchase enough life insurance to pay off those debts.
To decide how much life insurance to purchase on each spouse, you’ll need to calculate the potential financial impact that your death would cause for the other. How much money would it take for each of you to feel secure?
If you care for the financial needs of anyone outside your household, you may want to provide a benefit for them, as well. Don’t overlook elderly or disabled parents, nieces and nephews, or friends who depend on your financial support for their quality of life.
When one or both spouses have life insurance through work
In many cases, employers offer life insurance as part of their benefits package. While it’s a nice perk and typically costs only a few dollars each month, there are some drawbacks to depending solely on this type of policy.
If you are young and healthy, you can probably afford an inexpensive term life insurance policy independent of your employer. Life insurance through an employer terminates if you leave the company.
Rates for all types of life insurance increase as we age. If you develop a chronic illness, the cost of life insurance may be too high. You may even become uninsurable. If you already have a life insurance policy in place when you become ill and you keep paying the premiums, you’ll be insured no matter how your health condition progresses.
If your employer-sponsored life insurance is free, you should still consider purchasing an additional policy. It’s OK to have more than one policy in place, as long as the majority of your life insurance goes with you when you change jobs.
Life insurance choices for married couples
In most cases, both people in a relationship where there’s shared property and joint accounts need life insurance. There are a few choices for married people who want to purchase life insurance.
First-to-die life insurance pays a benefit when either person in the marriage dies. After that, the policy terminates. The surviving spouse does not have life insurance.
Second-to-die life insurance or survivorship life pays beneficiaries only after both people in the marriage die. For people who want to provide for the financial well-being of grown children or would like to leave a lump sum of money to a charity, this type of insurance is great. It may not be the best choice for couples who want to maintain financial stability.
Permanent life insurance has a savings component built into the policy. After the policy has been in place for a few years, you may be able to take out a loan against the cash value. This type of life insurance pays out no matter when you die. Each spouse will need their own policy.
Term life insurance is the least expensive option. It’s a top choice for young and healthy couples who may be on a limited budget but still want to protect the financial interests of the family. If the policyholder dies while the insurance is in effect, the beneficiary will receive the face value of the policy in a lump sum. They can do whatever they choose with the money.
When shopping for a term policy, note the difference in price between a 10-year, 15-year, and 20-year term. While you may think you’ll be financially stable enough in 10 years to handle the financial implications of the death of one spouse, many couples wished they had more coverage. If the insured person outlives the term policy, the beneficiaries do not receive money upon the death of the policyholder.
When you and your spouse don’t need life insurance
People who are financially stable and have enough money in savings to cover outstanding debt, funeral, and burial expenses may be able to skip life insurance. If they can provide for the future financial needs of the surviving spouse and anyone else they currently support with savings there’s really no need for a life insurance policy.
Having this type of financial stability is something that couples work toward and often want to achieve before retirement. For some, financial success comes earlier. In this case, you are “self-insured” and your loved ones aren’t at risk of financial devastation upon your death.