A strong financial plan for your family should probably include life insurance for both you and your spouse.
The death of a loved one can leave a massive financial and emotional hole, which is especially true with the loss of a spouse.
Many couples have inadequate life insurance coverage in place, relying solely on their workplace policy or only choosing to insure one spouse.
If you and your spouse have shared debts or rely on each other’s income or contributions at home, you both need to shop for life insurance.
We’ll unpack all of your best options and the key factors you and your spouse need to consider below.
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If you’re on the fence about who needs life insurance in your family, consider the factors below.
Here are a few reasons you and your spouse need to buy policies now.
Replacing Income or Stay-at-home Contributions
Would your spouse have a hard time paying the bills and maintaining their current lifestyle as a result of your death?
If you don’t have life insurance on the breadwinner, you are taking on too much unnecessary risk.
But breadwinners aren’t the only ones to consider. If you’d have a hard time paying to replace the services provided by your stay-at-home spouse out of pocket, you both need coverage.
When you have children, the needs above are amplified. Life insurance can ensure that your children are clothed, fed, and have a roof over their heads.
But it can also cover their childcare, extracurriculars, and education. If you have a special needs child, life insurance can provide for their long-term care if you or your spouse pass away.
You may even be required to purchase life insurance for adoption.
Paying the Mortgage
If you and your spouse purchased a house that isn’t paid off yet, you should both seriously think about buying life insurance.
In many cases, the burden of a mortgage can be too much to bear for one spouse.
Consider whether or not you or your spouse could comfortably keep up with mortgage payments if one of you passed away.
Covering Shared Debts
If you cosigned on a loan or a credit card, you could be held solely responsible for paying off the debt if your spouse passes away.
And if you live in one of the 9 states below, which are considered community property states, you’ll be on the hook for any debts your spouse took on after you got married:
- New Mexico
Taking Care of Final Expenses
You should have enough funds to pay for your and your spouse’s funeral and other end-of-life expenses.
The average funeral costs more than $9,000, which can be a lot for your spouse to bear at an already devastating time.
At the very least, you and your spouse should have enough in savings or life insurance coverage to account for funeral costs.
Even older applicants and those with serious health issues can qualify for small final expense policies.
Every year, your odds of dying or developing a high-risk medical condition increase.
The longer you wait to buy life insurance, the more expensive it gets. As soon as you and your spouse need life insurance, you should buy it.
That way, you’ll lock in the lowest rates possible, which can save you a significant amount of money in premiums over time.
When you and your spouse set out to purchase life insurance, you’ll have several policy options and amounts to choose from.
The right type of policy for you and your partner depends on your financial commitments and how long they’ll last.
Ultimately, you’ll need to choose between individual and joint life insurance.
There are several types of life insurance policies for individuals, but your choices basically come down to term and permanent coverage.
- Term: Term life insurance is ideal for most couples, paying out a set death benefit if you die within a pre-determined amount of time, like 10, 20, or 30 years. Term policies offer the most flexibility and affordability, letting you match your coverage amount and term to your changing financial obligations.
- Permanent: Permanent policies provide lifelong coverage, at a much higher cost. They also come with access to an interest-earning cash value savings account. There are multiple permanent policy types with different investment options and policy features.
The alternative to buying two individual policies is to purchase a joint policy designed for married couples.
There are two types of joint policies, both of which are usually permanent:
- First-to-die: This policy pays out the death benefit when the first spouse passes away, effectively ending coverage. If the surviving spouse still needs coverage, they’ll have to take out a new policy.
- Second-to-die: Second-to-die, or survivorship life insurance, only pays out when both you and your spouse have passed away, making them the more affordable of the two in most cases.
If you and your spouse can both qualify for individual life insurance policies, they’re usually a better call than joint ones.
Because it is so affordable and customizable, term life insurance is the best option for most spouses.
Buying two separate term policies lets you and your spouse get the lowest rates each of you is eligible for, which could save money.
Joint policies can also be difficult to divide if you and your spouse divorce.
However, joint policies make sense for couples who may have a hard time getting approved for traditional coverage based on one spouse’s health.
In some cases, a first-to-die policy is the most affordable option for couples to protect their families.
A survivorship policy can also be a great solution for high-income couples looking to cover estate and inheritance taxes for their children.
Since you have insurable interest, meaning you would suffer financially if your partner passed away, you can take out a policy on your spouse.
However, you cannot insure your spouse without their consent. They must sign off on the policy and might have to undergo a medical exam.
You can name others, such as your child, business partner, or even a charity, business, or trust as beneficiaries.
But if you live in a community property state, your spouse has to consent to you naming anyone other than them as a beneficiary.
You can name a domestic partner as your beneficiary or take out a joint policy together.
In either case, you may have to submit extra documentation to demonstrate insurable interest.
To determine the right coverage amount, consider your family’s needs, starting with income replacement.
Experts recommend buying coverage that amounts to 7 to 10 times your income, adjusting based on your age and assets.
You should then factor in financial obligations like shared debts, final expenses, and tuition.
Data suggests married couples may see lower home and auto insurance rates, but marital status doesn’t affect life insurance premiums.
Instead, life insurance underwriters consider factors like your age, gender, health, and lifestyle.