When a couple first gets married, they picture the long road ahead. The blissful honeymoon period, buying that first home, perhaps having kids and growing old together.
What many don’t imagine, is the death of their spouse.
Even in the traditional wedding vows, we speak of death. “Till death do us part”. Preparing for and considering the financial consequence of your death is a key component to the financial success of the marriage.
Why We Don’t Like to Talk about Life Insurance
Death is an uncomfortable and even mysterious topic to many of us. The odds of dying in your 30’s or 40’s are so remote, it feels like it’s not a possible outcome worth preparing for. The fact is you only have around a 1 percent chance of dying before the age of fifty-five if you live in the United States.
On top of that, when scraping for dollars to pay down debt, save up for a home or reach financial independence, life insurance can seem like an unnecessary expense.
Why Life Insurance is a Key Component to Your Financial Plan
Your personal financial future includes your death. You can’t get out of it!
Just like everything else in personal finance- retiring early, paying for college, or buying a home. You have to begin with the end in mind and make conscious decisions that will give you the outcome you want.
Because your income drives your financial plan, it needs protected. Not for you, but for your spouse. If your spouse can be assured of your continued income (whether or not you’ll be alive) S/he can be assured of their future financial success.
Life insurance doesn’t insure your financial future, it insures your spouse’s.
How to Pick a Life Insurance Policy
There’s, unfortunately, a lot of bad actors in the life insurance sales world, and that’s part of why life insurance often stays on the back burner.
These sales people can be pushy, gimmicky, or misleading. It’s not a topic that many people know about. When people are confused, they often do nothing.
Using a site like Policy Genius can take the pressure off. But if you go this route, you’ll need to figure out how much coverage you should have on your own. Keep in mind, a human will still assist you. Unlike most online sites however, they will not harass you. They will simply walk you through the process of getting underwritten.
Keep in mind that there is more to a life insurance policy than price. You’ll want to know about any exclusions that might come with the policy and how the claims process would work, also the financial stability of the company you are being insured through may also be a consideration.
There’s only two times you’ll need your life insurance company; when you get the policy, and when your loved one is filing a claim.
You’ll want to know that the company is going to be easy to find and deal with for your loved one when/if they ever need to file a life insurance claim. Google the company with the words “refused claims”, “Claim experience” and “exclusions” and see if any of the results cause you concern.
How Much Life Insurance Coverage Should I Carry
Most affordable life insurance companies will require a medical exam for coverage above a certain threshold. Beware of ‘no medical’ life insurance companies, they are often twice the cost of one with a medical.
Normally it makes sense to get the maximum amount of life insurance you would need (and can afford) and then shave that number down as your life circumstances change. Life insurance companies will always let you cancel a portion of the coverage, but they’ll require a medical to get more.
Getting only what you’ll need today and then planning on getting more if you need it, can be a pain (because you’ll have to do another medical). You’ll also have to overcome the reluctance to have the conversation all over again.
There’s no guarantee that you won’t receive an unfortunate diagnosis, an untimely surgery or your health won’t decline between now and when you’ll want insurance increase in the future.
There are three popular ways to assess how much coverage to get:
- Multiples of income: This is what your employer life coverage generally is. Take your annual income multiplied by the number of years you want the income supplied for and that’s your number. Think about what you’ll likely make from employment midway through your career. Considering using this number instead of your current salary if you use this method.
- Debt + expenses: This method assumes that if all the debt was paid off and some final expenses/ transition money was allowed for, that your spouse (or family could get on with out you). All your debt + income for a transition period equals the correct amount of coverage. Again, consider your future obligations. If you don’t have a mortgage now, will you likely have one in the future? If so, what’s an approximate number?
- Painting the picture: This is the most accurate, yet most difficult method. This method is a thought exercise where your partner mentally walks through you being dead and figures out what they would do.
Would they sell the home? Move back in with their parents? Who would take care of any kids that you have while they worked? Would they still want to pay for the kids college? Would they be able to maintain the same lifestyle on just their salary.
Each of these questions has a dollar amount attached to it. Add up the cost of accomplishing your partners plan and that’s your coverage amount.
What Kind of Coverage Should I Have?
There are three main types of life insurance. The table below describes them succinctly.
| Term | Universal | Whole Life |
| Temporary- covers specific period | Can be permanent or can lapse | In-force for ‘whole life’ |
| Increasing premiums or fixed for term | Flexible premiums | Fixed premiums |
| Least expensive | Premiums determine longevity of policy | Most Expensive |
| No benefit during life time | Builds cash that pays future premiums | Builds cash that can be borrowed, used or purchase more coverage |
To determine the right coverage for you, you will want to consider. How long you want the coverage, whether it’s important that the policy have some sort of tangible cash benefit during your life time, and the premiums you can afford.
If you only require coverage for a period of time, for instance, until your kids are out of the house, you reach financial independence or you pay off the house. Then a fixed rate term policy could be best.
If you would like a death benefit to be paid out at your death, even if you live to 90 and you’d like the advantages of some potential tax-free income in retirement, or an additional pool of money to borrow from, whole life may be a better answer.
Universal life, or a combination of whole and term can create a ‘sweet-spot’ for your financial plan if you’re somewhere in between.
Most companies allow for ‘term conversions’, which give you the right to convert your term policy to whole life in the future with no medical. Often if you are just starting out it makes sense to purchase the term, and consider converting in the future.
Keep in mind that although you may have coverage through your employer. That coverage is owned and controlled by your employer and thus not portable. It’s a good idea to have at least some life insurance coverage that you own and control.
Life Insurance Lessons to Remember
Life insurance isn’t about you. It’s about your spouse. Their financial plan is dependent on your future income. If that disappears, they are in trouble.
Life insurance is a factor of your health and your age. Getting started sooner rather than later will give you a better chance of being approved and getting the best rate.
Begin with the end in mind, it’s no fun to imagine your death or the death of your loved one, but taking time to consider the ‘if’s” one time, can save your spouse from a life time of financial misfortune if the unspeakable should occur.
About the Author
Jeffrey Lucas Jr- is a financial writer, who writes about aligning money with life’s purpose at www.jeffreylucasjr.com.
He quit his near six-figure banking job, took a year off work, and now spends his time pursuing his life’s mission. You can follow him on Twitter.
