It’s an exciting time in your life, and it’s also something that requires a lot of financial planning. Spouses often combine finances and debt and take on new expenses together, like a home mortgage and raising children. As you prepare for your future together, you should also prepare for any unexpected situations that will affect you both.
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Your current debt
If you have financial responsibilities such as student loans, a car loan, or credit card debt, your spouse will take on these debts if they’re co-signers. Even if they’re not co-signers, your spouse may still be responsible for it or have to face repercussions, like the car getting repossessed or taking a hit on their credit score if they’re an authorized user on your credit card. In states that operate under community property laws (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), your spouse would be responsible for debts that you assumed during your marriage.
What the future holds
Marriage often jumpstarts a series of large financial commitments that can depend on more than one income—like buying a home and having kids. As the financial responsibilities build, there can be more at stake from the loss of a partner. The remaining partner and family could lose their home, future plans, and lifestyle during an already devastating time.
Rates for all types of life insurance increase significantly as we age, so there is no better time to buy life insurance than today. The rate you lock in today will stay with you through the length of your term life insurance policy, which could save you money in the long-run.
If your health worsens or you develop a chronic illness, the cost of purchasing life insurance may become too high, and you may even become uninsurable. If you already have a life insurance policy in place if you become ill and you keep paying the premiums, you’ll be insured while the policy is active and in force, no matter how your health condition progresses during the policy term.
If you are responsible for the financial needs of anyone outside your household, you may need 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.
Life insurance can serve as a form of income replacement, so if one partner is the primary earner, do both really need it? The answer may be yes. Consider each partner’s debt, financial responsibilities, and what would happen if they weren't around. This is especially important for parents. Non-working parents provide economic value that can be difficult to quantify, but the expenses around childcare, cooking, cleaning, and other household duties should be considered.
To determine how much life insurance to purchase for each spouse, calculate the potential financial impact that a death would cause for the other. How much money would it take for each of you and your potential family to be secure?
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You may not need life insurance if you have enough savings to provide for the future financial needs of your surviving spouse and anyone else you support. This type of financial stability is something that couples work toward and often aim 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.
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Your employer may offer life insurance as part of their benefits package, but it isn’t usually enough to cover major expenses. Most employer-sponsored policies equal to 1-2X your annual salary, but many financial experts recommend having about 10X that. Solely relying on employer-sponsored coverage may result in a coverage gap that would leave your loved ones unprotected in the event of your passing. And if you leave the company, your employer-sponsored life insurance might not stay with you. This is why many people purchase a personal term life insurance policy to supplement the coverage you receive through work
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As the name suggests, individual policies insure an individual. Term and permanent are the two most common types of individual life insurance.
Term life insurance is often the most affordable and straightforward option. It provides coverage for a set period or “term” (typically 10–30 years) and is designed to protect your dependents during that term. If you pass away during the term period, your beneficiaries receive a lump-sum payment referred to as the “death benefit” to cover expenses or income loss related to your passing. If you pass away outside of the term period, no benefits are paid.
At Ethos, our goal is to insure and protect as many families as possible. Offering term life insurance lets us do so in a way that is simple and affordable, protecting families during a time when they need it most.
Permanent insurance can be more complicated than term, and it offers different benefits. There are many types of permanent insurance. Whole life is the most well-known form of permanent life insurance that lasts for the entirety of your life or to policy maturity, and a payout is often guaranteed at the time of death. Some of the money paid into the policy is typically set aside to build “cash value,” which can increase the death benefit or be accessed on a tax-free basis with a policy loan. These benefits are why whole life policies can cost up to 20X more than term policies, and why some say whole life insurance is a more conservative, long-term strategy over buying term insurance.
Joint policies insure more than one person, typically a married couple. Read on about the two most common types of joint life insurance.
If a spouse were to pass away, a first-to-die policy generally pays a benefit to the surviving spouse, and the policy terminates after the benefit is paid out. This option assumes that the surviving spouse no longer needs life insurance. Depending on many factors, first-to-die coverage may or may not be less expensive than individual life policies.
Second-to-die life insurance usually pays a benefit to the beneficiary after both insureds in the marriage pass away. This option assumes that the surviving spouse will not need a death benefit paid out in their lifetime.
