She Said YES! Is It Too Early To Buy Life Insurance?
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.
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 we think the better time to buy is earlier — as soon as your finances become as entwined as the rest of your lives.
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.
Should anything happen 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.
How many policies?
Your life insurance decisions in marriage begin with the question: one policy or two? Two is the more common choice, and the cons of a joint policy outweigh the advantages for most couples.
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.
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 divorce, 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.
The premium savings by starting early 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 in to 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.
Change your insurance over time as needed
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 with your RCB & Associates agent 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.
Read the entire Money.com article here