If you’re newlyweds or planning to marry soon, shopping for life insurance is probably being edged out by more romantic purchases such as — well, just about anything a newly married couple typically buys. But this coverage should be on your to-do list, say experts, especially during the pandemic.
With COVID-19 continuing, life insurance becomes of high importance to many couples, says Joshua Meier, California estate planning attorney at Meier Law Firm. The pandemic should prompt people to be “concerned about death and mortality,” he says, and to be “more inclined to think about how your loved one would be taken care of if something happened to you."
When you get married, you’re entering into a legally binding contract to be in a partnership with your significant other, both maritally and (usually) financially. That makes a marriage an ideal trigger to buying life insurance, unromantic as that thought is. Here’s a guide to when and how to work through that process.
When couples should get life insurance
Newlyweds who plan to have a family often put off buying life insurance until they actually have dependents — or at least until there’s a baby on the way. But experts say the better time to buy is usually earlier — as soon as your finances become as entwined as the rest of your lives.
That’s usually on your wedding day, but it could be sooner. If you’ve bought a house together while you’re engaged, say, or even made a downpayment on one, you could already be vulnerable were one of you to die, and the surviving spouse would be left holding the mortgage alone.
Whatever the timing, buying a home — with the assumption you’ll both be alive, married, and paying the mortgage together for decades — is the perfect catalyst for getting life insurance, says Laura Meier, financial expert and author of The Family Nest Egg.
Meier says that if anything happens to one partner, the surviving spouse would have to meet all their financial obligations and goals, for the home and otherwise. “The reason newlyweds need life insurance is that they have somebody else who's financially dependent on their income,” she says.
Another benefit to buying life insurance early is its role in making you think more broadly about your joint financial life. By buying a life insurance policy as newlyweds, you’re likelier to start having meaningful conversations about your financial future earlier, according to Larry Gatz, CFP and president of financial planning firm Cooperwood Financial.
How many policies, and of what type?
Your life insurance decisions in marriage begin with the question: one policy or two? Two is the more common choice, and the cons to a joint policy outweigh the advantages for most couples, according to Guardian Life.
Still, a joint policy may make sense for young families looking for income replacement to maintain the same lifestyle or for those looking to facilitate the estate planning process. Joint policies of the first-to-die type disburse the death benefit once the first person on the policy dies; the surviving spouse can then use the payout to maintain their accustomed standard of living. A potential drawback, though, is that the surviving spouse then leaves no coverage for their heirs. In the event that’s needed — say to cover funeral expenses or other costs after death — the survivor would have to apply for a new policy.
A second-to-die policy, also known as a survivorship policy, is paid out once both people named on the policy die. Survivorship insurance is commonly purchased for estate planning. According to Guardian Life, it can provide “liquidity to pay estate and inheritance taxes, assets to generate income for surviving dependents, estate equalization among heirs and funding for special-needs children.”
There’s another variation on joint policies if one spouse cannot qualify for coverage on their own due to, say, a chronic medical condition. The qualifying spouse gets a policy with what’s known as a spousal rider. The rider ensures that you will receive a death benefit if your spouse dies, albeit a smaller one, because these policy add-ons are typically limited in the benefit they will pay. For example, Nationwide will cover the primary insured starting at $125,000 with a $25,000 minimal spousal coverage.
As for the variety of policies to buy, newlyweds’ primary options — as with all buyers — are term or permanent. Term life insurance, which provides coverage within the selected term, typically between 10 to 30 years, is the most convenient and affordable type across the board. On the other hand, whole life insurance, which provides permanent (as in lifelong) coverage with a guaranteed death benefit, tends to be more expensive and typically better suited for high-net-worth individuals.
The upshot? If you’re looking for flexible coverage at an affordable price, buying separate term policies grants you both advantages. And if you divorced, term policies would be easier to separate.
How big should the benefit be?
The most common formula for buying life insurance is to purchase coverage somewhere between 5 to 10 times your salary — which, for a couple, would be the multiplier of your combined annual salaries.
At Bestow, says Megan Cherry, director of the insurer’s consumer experience, life insurance policyholders in their 30s typically buy an average coverage amount of $500,000 each. But Cherry says the right amount of life insurance should not be formulaic but based on each couple’s financial situation.
Other advisors concur.
When it comes to life insurance for couples, there is no “one size fits all” solution, says Nathan Schelhaas, VP at Principal Financial Group. “To start, take inventory of what you’re trying to protect, whether that be your home, business, family or kid’s college education, for example. And to what extent — how much, and how long.” Then, consider the options available to you and compare prices.
Gatz has three main considerations when helping clients figure out how much life insurance they need: the loss to your household if you or your partner passed away, whether both of you are working and whether you are purchasing any major assets together.
This means that when choosing a coverage amount, Gatz says, you should take into account your earnings as well as your partner's, including any "services" you perform for the household, such as housework and childcare. And if you’re buying a home, choose a policy amount that can pay off the remaining mortgage balance and a term length that will cover you for the duration of the mortgage.
How long is coverage needed, and when to start?
The time period over which a couple needs to be insured should also be tailored to their financial plans. If you share a mortgage with your partner and want to cover mortgage payments if either of you died, you may need a 30-year life insurance policy with a benefit amount equivalent to 10 to 30 times your annual salary, explains Gatz.
On the other hand, or in addition, if the policy aims to cover childcare costs if one partner dies, the benefit amount should depend on how long the children might require care, and its cost in your area. That’s likely to be a shorter period than the typical mortgage term, perhaps 10 to 20 years.
In a household with only one working partner, Gatz adds, coverage needs may be substantially higher and need to last longer.
Of course, the sooner you start a policy of a chosen length, the sooner you are covered. At the same time, your need for protection is lower when you are young, statistically speaking, because you’re less likely to die.
However, keep in mind that the younger you are when you buy life insurance, as a rule, the lower the premium will be. That’s the case not only at the start of the policy but throughout its term, because premiums are locked in for the entire period.
The premium savings by starting early, then, can help subsidize the overall cost of coverage and make that early coverage less expensive in the long run than it may seem. For example, a 30-year $500,000 term policy you purchase in your mid-twenties might typically cost $30 a month, and protect you into your mid-fifties — when your mortgage may be paid and your children are likely to be growing into self-sufficiency. But if you waited until your mid-forties to buy a policy, the premium could easily rise to $80 per month.
The early start, then, would mean you’d pay thousands less to be protected for the important decade from your mid-forties to mid-fifties. And those savings would essentially further reduce the net cost of being insured in your twenties and thirties.
Of course, age isn’t everything when it comes to the price of a policy. Life insurance companies will consider your gender, lifestyle and occupation when pricing your policy as well as your overall health. The latter factor is another reason to start early; the older you are, the more likely you are to develop medical conditions that could further add to the effects of age in raising your premiums.
Change your insurance over time as needed
“Getting married is one of those life events that motivate you to get your affairs in order,” says attorney Meier. And the sooner you start the process the better, experts say. “It can’t be overstated that the best time to buy life insurance is always “yesterday” or, failing that, “right now,” says Jamie Hale, CEO of Ladder.
Buying life insurance as newlyweds doesn’t lock you into the same coverage forever, or even for the term of the policy. If your finances dramatically change for the better — by, say, receiving a sizable inheritance or another windfall — you’re free to cancel your policy (and stop paying its premiums) before the term is up.
Conversely, review your policy whenever you experience a major life event that might require additional coverage. “Newlyweds should revisit their life insurance needs during significant life milestones, like having a child or buying a more expensive home. If there’s a need for more coverage, they can purchase a second policy,” Cherry adds.