Marriage vows often include the phrase “till death due us part.” So what happens if death occurs to one spouse or partner in a relationship sooner than expected?
Spouses not only depend on each other emotionally, but there is also typically a financial dependence that goes both ways. Today, in most relationships, both people bring income and assets that are used to pay bills and maintain a certain standard of living.
If one spouse dies, there will be funeral expenses and other settlement costs. In addition, the surviving spouse will lose the income provided by the dying spouse.
This is why each person in a relationship should be covered by a life insurance policy.
If you bought a life insurance policy before you got married, you will want to ensure that the death benefit is sufficient to provide for your surviving spouse. In addition, you will need to ensure your spouse is listed as the policy beneficiary.
There are a few types of life insurance policies that can meet your coverage needs.
One option is to buy two separate life insurance policies, one for you and one for your spouse. Two types of policies you can consider are term and whole life. A term policy will cover your life for a set number of years, typically from 10 to 30. A whole life policy is designed to cover you for a lifetime as long as you pay the required premium.
If you buy two separate policies, it may be possible to save money by purchasing them from different insurance companies. This is especially true if there is an age gap between you or if there other underwriting factors such as health where you and your spouse differ.
That’s because different life insurance companies will assess underwriting risk factors differently.
For example, some insurers will minimize the effect of high-risk hobbies on your underwriting, especially if you have a license or certification and a certain amount of experience. So if you like to participate in, say, scuba diving and your spouse doesn’t, you may each find a better deal with different insurers. The insurance company that gives your spouse the best deal may penalize you for being a scuba diver and charge you a higher rate than another company.
Some insurance companies will offer better rates for certain ages. So if you’re 50 years of age and your spouse is 30, you may find optimal rates for both of you from different insurers.
The same goes with health conditions and whether or not one of you uses tobacco. If you or your spouse has, say, diabetes, you may find a better rate with a different company than the rate your spouse finds. Some insurers have more competitive premium rates for tobacco users than others.
Another option is to buy one policy that covers the lives of both spouses. This is known as a joint life insurance policy. There are two types: first-to-die and second-to-die.
A first-to-die policy pays out a death benefit after the death of one spouse to the surviving spouse. Once the death benefit is paid out, the policy expires and the surviving spouse is no longer covered by the policy.
A second-to-die policy pays out the death benefit after both individuals die. This type of policy is generally used for estate planning.
Another option is to buy a single term life or whole life policy with an additional insured rider. In this scenario, one spouse is the primary insured on the policy, and the other is covered by the rider.
Couples may want to work with a licensed insurance agent to conduct a life insurance needs assessment. This process can help determine the right amount of coverage both of you need.
To get adequate coverage, you should be prepared to have a death benefit equivalent to anywhere from six times to 15 times your current income. You can also estimate your coverage needs by multiplying your current income by the number of years remaining until your retirement.
As you assess your life insurance needs as a couple, you will want to ensure that the surviving spouse or partner can maintain your standard of living if one of you dies. Keep in mind that a widowed spouse may need significant time off work to grieve. Life insurance benefits can help a surviving spouse replace the lost income they incur while taking time off work.
It’s also good to provide enough coverage to repay any outstanding debts you have as individuals and as a couple. This includes your mortgage, car payments, credit card debt, medical bills, and student loans.
Typically, your debt becomes the responsibility of your estate following your death. And your estate will automatically pass to your surviving spouse.
Any loans in which there was a co-signer must be repaid by that individual. If you still have a mortgage, a joint owner or the person who inherits the house will be responsible for making the loan payments. If the house is sold, the mortgage balance will have to be repaid by the sale proceeds.
In community property states, all assets and liabilities acquired during a marriage are considered to be owned by both spouses. This is true even if the spouse did not co-own, co-sign, or hold joint account status. In these states, joint ownership is automatically presumed by law. Also in community property states, the surviving spouse is responsible for student loan debt if it was incurred during the marriage.
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Your needs assessment should also factor in whether you have children or plan to have children. According to the United States Department of Agriculture, it costs, on average, more than $233,000 to raise one child. This includes food, housing, transportation, health care, clothing, education, and other items. Don’t forget to include the potential for college tuition.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.