You make plans with your partner all the time. Some are relatively simple, like Sushi or tacos? or Should we take the kids to Florida this year?
It’s harder to ask, What would happen if I lost you?
For lots of families, life insurance is a way to help protect your partner’s—and your kids’—financial future, even if you weren’t around. No policy can replace you or your partner, but a life insurance benefit can help one of you make ends meet if the other passes away unexpectedly. (Do you really need life insurance?)
That’s why many couples tend to shop for life insurance together. Although you’ll likely end up applying for separate life insurance policies, there’s a good chance you’ll be looking together at the same time, comparing notes and discussing which policies to go with.
Here’s how to navigate the process as a twosome.
Just like some spouses have a “spender” and “saver” when it comes to budgeting, you might find that one of you is eager to explore life insurance while the other is more hesitant.
“I tell clients all the time, life insurance is just like car insurance,” says Rose Price, a Certified Financial Planner and partner at VLP Financial Advisors. “It’s the insurance you hope you never need, but if you do, you’re very happy you have it.”
For Jamie Beth Schindler, a writer in Pennsylvania, life insurance was an important cushion during a difficult time in her life. Her father kept a life insurance policy, even though his mortgage was paid off and Jamie and her brother were already adults.
“I knew about it only because I was managing his finances while he was sick,” she says. When he died, half of the death benefit went to his own aging father, and the other half was split between Jamie and her brother.
Because her father’s illness had been incredibly stressful for her as his power of attorney, healthcare proxy and daughter, she used some of her share to take a trip. “The rest of it has served as a cushion. My husband and I have both had periods of unemployment and under-employment, and knowing we could pull from savings has given us some flexibility in the decisions we are able to make,” she says.
If your partner’s hesitation is that life insurance is too expensive, you might find out that there are more affordable options than you expected.
Most of the time, even though you’re united as a couple, it will likely make sense to take out separate policies instead of purchasing a joint policy.
Joint policies cover both spouses, in either a first-to-die or second-to-die policy. A first-to-die policy pays a death benefit after the first partner dies. But then the policy ends, so the surviving partner would need to apply for a new policy to continue their coverage.
With a second-to-die policy, the beneficiary won’t receive a payout until both you and your partner pass away. This defeats the purpose for couples who would rely on a death benefit to help support the surviving spouse.
Separate, or individual, policies aren’t affected by what happens to your partner. Your policy covers you for the term you choose. That means that whichever of you were to pass away first, their beneficiaries would receive a death benefit (as long as the monthly payments are up to date) and the other partner would continue to be covered.
Life insurance comes in various forms. Most couples who are looking for life insurance as coverage against worst-case scenarios (as opposed to buying a policy as part of a wealth management plan) compare the pros and cons of term and whole life insurance policies.
Term life insurance tends to be significantly cheaper than whole life. The downside is, if you outlive the term, your coverage expires and you don’t get any money. Whole life provides a death benefit payout no matter when you pass away, but your premiums could be almost 20 times higher than comparable coverage with a term life policy.
(A 30-year-old, non-smoking man in excellent health in Washington, DC might get a quote of $460+ per month for $500,000 coverage on a whole life policy, according to a quote we got from State Farm, and only $24 monthly for the same coverage as 20-year term life through Fabric.)
Although you and your partner don’t necessarily have to make the same decision when it comes to term vs. whole life, it’ll probably be helpful to chat out the pros and cons together to decide what would be the most helpful for your family. After all, the decision you make will most directly impact your spouse, and vice versa.
In cases where couples find themselves disagreeing about which route is better, some couples split the difference by taking out multiple policies to add up to the coverage amount they want.
For example, if you want $600,000 of coverage, you might choose to take out a $500,000 term life policy and a $100,000 whole life policy. If you die, the combined payout is $600,000. In the meantime, though, you have lower total premium payments than relying on whole life for all the coverage you want. You also have the peace of mind of knowing there’s at least some payout as long as you keep up with premiums on the whole life policy.
If you opt for life insurance policies that are independent from each other, does it matter if you use the same or different insurance companies?
“It tends to be easier if you can utilize the same company,” Price says, because you won’t have to keep track of documents and contact information for two companies.
If you both expect to get the preferred category of insurance rates, it’s probably more straightforward to choose a life insurance provider together.
“The only caveat is if you have a medical condition or are on medication,” Price says, “it may make sense to work with the underwriting team and ask if there’s one company or another that is better suited for you.”
In other words, the partner with a medical condition should choose a company that’s most likely to work most favorably with their health issues. If the other person can find a cheaper policy with another company, that might be the best bet.
Life insurance underwriters calculate the max coverage they can offer you based on your “human life value.” That’s usually based on your salary and how many years you have left to work. For non-employed partners and stay-at-home parents, human life value is usually based on a percentage (typically 50 to 100 percent) of what the employed partner makes.
Just because you’re approved for a million-dollar policy doesn’t mean you automatically need to go with that option. But Price cautions against playing it too small with your coverage amount, either. Life insurance policies typically get more expensive the older you are when you apply, so locking in a lower premium now might give you more coverage bang for your buck.
Price often hears from people who bought life insurance through work and picked an arbitrary coverage amount, like twice their annual salary. “Okay, what if you die at 40? How far does that get your family?” she asks.
Instead, think about how much life insurance you need in terms of what your partner would need to pay for if you were gone. If you make unequal salaries or if one of you stays at home with the kids, then you might opt for different coverage amounts.
For example, maybe you calculate how much would make up for what your working spouse would have contributed financially for a decade; maybe for a stay-at-home spouse you calculate the additional costs of childcare, housework and extra expenses as the surviving spouse takes on a greater burden outside of work.
In some cases, if one spouse works and the other doesn’t, it may make sense for the working spouse to apply first and for the stay-at-home parent to apply second. Generally speaking, life insurance is meant to replace money you would have earned, so from the insurer’s perspective, it makes sense to protect the family’s income first, and then the support partner next.
(Read more: What should I do with a life insurance benefit?)
When considering a coverage amount that’s appropriate, it’s important to factor in any existing life insurance coverage as well as your current income. That’s because an application can be denied for lack of financial justification if the coverage goes beyond what you’re eligible for.
Wedding vows talk about commitment to your partner “until death do us part.” The life insurance conversation can be a way to put that promise into action, setting up a plan to take care of each other’s financial well-being, whatever the future sends your way.
Fabric exists to help young families master their money. Our articles abide by strict editorial standards.
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Fabric Instant is an Accidental Death Insurance Policy (Form VL-ADH1 with state variations where applicable) and Fabric Premium is a Term Life Insurance Policy (Form ICC16-VLT, ICC16-VLT19, and CMP 0501 with state variations where applicable). Policies are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT (all states except NY), and by Vantis Life Insurance Company of New York, Brewster, NY (NY only). Coverage may not be available in all states. Issuance of coverage for Fabric Premium is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.
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