How to Adjust Your Life Insurance for a Second (or Third) Marriage
Marriage isn’t necessarily simpler the second time around, especially when it comes to your finances. For one, when you remarry — or marry for the first time later in life — you're faced with what best to do with assets you acquired before you tied the knot again, including your life insurance coverage.
That work may be complicated by obligations to people other than your new spouse, including to children from a previous marriage. Then come the responsibilities of your new union which, among other issues, can create the need to change who benefits from your existing insurance policies — and to decide if you need buy additional coverage.
“An important part of remarriage is re-examining all things financial,” including your life insurance, explains Erik Lecomte, sales manager at Dayforward. Here’s a quick guide on entering into a new marriage in a way that ensures your insurance needs are in order.
Make life insurance part of a financial plan
It may not be romantic — or even comfortable — to talk about money as part of the planning for your new life, but experts say it's essential to do so. Developing a financial roadmap if something happened to you or your spouse can create peace of mind, says Lecomte. It also helps to avoid conflicts down the road over such assets as insurance policies.
Where to begin? Jennifer Lee, founder of Modern-Wealth, encourages couples to start by addressing financial holdings, spending habits, health concerns and any debts acquired before the marriage.
In those discussions, be sure to account not only for current assets, she says, but also future expenses, including those for retirement, college tuition costs, mortgage payments, funeral expenses, and potential medical bills.
According to Bryce Welker, CPA and owner of CPA Exam Guy, among the most common concerns of divorcees entering a new marriage is what will happen upon their death to assets such as insurance policies and other aspects of their estate, including family inheritances.
If the complexity or sensitivity of those assets poses a challenge, consider getting help. A financial advisor or other professional can both advise couples and mediate between them.
Update the beneficiaries of your policies
Life insurance proceeds will be paid to named beneficiaries regardless of any instructions in a will or estate planning document. Make sure, then, to account for your new spouse if you want them to be financially protected.
“One of the biggest mistakes I see is people forgetting to update their beneficiaries on their life insurance policies,” says Nick Davidson, a financial advisor at Foster Klima. “Not much is worse than having a new spouse and then having them find out that your life insurance was paid to an ex. This happens more than you think.”
For most people, it's an easy decision to change the beneficiary to the new spouse, explains Beth Lynch, CFP and financial advisor at Fort Pitt Capital Group. “However, if you have children, you may want to leave a policy to them that could help pay for future expenses like college.”
In such cases, you may want to name multiple beneficiaries in your life insurance policy to make sure all your loved ones are adequately covered. Alternatively, you could create a revocable trust. Also known as a living trust, such a trust distributes your assets after your death to beneficiaries as designated. As its name reflects, such a trust can be modified or revoked as you wish for as long as you're alive.
Striking an ex from a policy isn’t always possible. A former spouse may have to remain as a beneficiary in the event you owe them child support. If that's the case, speak to your attorney before changing beneficiaries to ensure you don't violate the divorce decree.
Regardless of your situation, consult both your attorney and financial advisor to determine the best financial plan for you and your loved ones.
Buy more coverage as needed
There’s a possibility you’ll need more coverage in your new marriage. That’s because as a couple you may create obligations, such as a mortgage, that may require a policy to help cover in the event that one or both of you were to die.
Here again, life insurance shouldn’t be considered in isolation. It’s smart to review your current coverage in conjunction with a financial plan or estate plan review, says Natalia Keene, advanced sales consultant at Securian Financial.
That planning is wise, not least because you may not be able to get or afford all the insurance you’d like for your new marriage. Since remarried spouses tend to be older, life insurance may not be as easy to obtain or as inexpensive as was earlier in their lives. The medical issues that can multiply with age can also lead to denials of new coverage.
And even with a clean bill of health, life insurance premiums rise with age, in step with an increasing risk of death. “The sooner these conversations take place, the better. On average, life insurance increases in price by 8 to 10% each year you are not covered,” Lecomte points out.
With life insurance coverage an essential part of any couple's financial plan, assessing your policies with your new spouse can help ensure you both have enough coverage and that your policies are being put to their best use.
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