- Whether you are married or in a domestic partnership, there are two main options for life insurance.
- Individual life insurance, where you each get your own policy, works for most couples.
- Joint life insurance could be good for high-wealth couples or those with a disparity in age.
- Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »
Most people consider life insurance when they get married or start a family. The well-being of children, spouse, and other family is a motivating reason for most — to cover the mortgage, education, and other expenses so that their family can continue after they die.
For married couples, there are several options. They can get separate individual life insurance policies, but there are also joint life insurance policies geared towards married people and couples. There are advantages and disadvantages to both individual and joint life insurance policies. The best option is the one that fits your finances and needs for the future.
Marriages and domestic partnerships may be treated differently
If you want to buy life insurance on someone else, you must have an insurable interest in their life, meaning you will suffer if they die. You don't necessarily have to be married, although it is easier to prove an insurable interest via marriage or a business relationship like business partners.
If you are in a domestic partnership, you would need to show an insurable interest. It may mean additional questions and documentation is required during the underwriting process.
Life insurance options for couples
| Individual life insurance | Joint life insurance |
|
|
Some couples carry individual life insurance policies, naming their spouse as the beneficiary. Others have joint life insurance policies.
Individual and joint life insurance policies can be term life or permanent life. Unlike term life insurance, which only lasts for a specific timeframe, permanent life insurance never expires. Also, permanent life insurance has a cash value component in addition to the death benefit. A permanent joint life insurance policy will be more expensive than a term life policy due the cash value component.
Individual life insurance
An individual life insurance policy pays beneficiaries when the insured dies. Couples normally name their spouse or trust as the beneficiary.
An individual policy goes through underwriting based on the individual. Your insurability is determined based on your health, job, income, finances, and other personal information to determine how much it will insure you and what your premium will be.
Joint life insurance
Unlike an individual policy, underwriting for joint life insurance is based on both people. For joint life insurance, a couple can pick if the policy is "first to die" or "second to die."
"First to die means" when one person dies, the death benefit pays the beneficiary. "Second to die" is also referred to as survivorship life insurance because the death benefits don't pay out until both people die. Joint life can also be a term or permanent life insurance policy.
Joint life insurance policies are beneficial for high-wealth couples seeking to lessen the impact of inheritance and estate taxes on their beneficiaries, according to Mark Williams, CEO of Brokers International. He noted that joint life insurance could also be a good choice if there's a disparity in age between couples, because the policy will be based on an average of their ages and health, which is a better deal than buying separate individual policies.
Additionally, Williams said that a "second to die" or survivorship joint life insurance policy also works when one spouse is healthy and the other is not, because it is priced based on the healthy person. The insurance company calculates when they have to pay out, usually not until the healthy person dies.
Joint vs. individual life insurance: Which is better for couples?
For most couples, getting separate, individual life insurance policies should be sufficient. Joint life insurance policies are typically used by high-net-worth couples to lessen the burden of estate taxes for their beneficiaries.
Your financial situation, number of dependents, health concerns, short-term, and long-term goals need to be evaluated before deciding between individual or joint life insurance.
Whether you have a one- or two-person-income household will also factor into your decision. If you're a stay-at-home parent, a separate life insurance policy is a plus. Salary.com said that the value of services a stay-at-home parent provides is around $162,000 yearly. If the stay-at-home parent dies, the other spouse would have to pay someone to fulfill the duties provided by the stay-at-home parent like: caring for the children, cooking, cleaning, and maintaining the household. Because stay-at-home parents don't generate income, some life insurance companies offer death benefits to them equal to the breadwinning parent.
Couples should discuss their options with their financial planner, accountant, and estate lawyer to make sure they understand the tax implications and benefits.
Whether you go with individual or joint life insurance, keep in mind that problems can occur if a couple divorces. Typically, a policyholder can change beneficiaries, but you may not be able to simply cancel a policy or remove your ex as a beneficiary.
If you live in a community property state— where all property is considered marital property and belongs to the couple not the individual — there may be certain laws regarding life insurance policies. Also, if the life insurance policy is used to insure alimony or child support payments, there may be legal implications. It's best to discuss with your agent before signing a life insurance policy what options exist for divorce or legal separation.
How much life insurance do couples need?
The goal of having life insurance is to ease the burden on your loved ones after your death. When thinking about your death benefit amount, consider what expenses your spouse will have to cover if you were to die today.
When selecting your death benefit amount, you'll typically want 10 times your annual income. For example, if you make $75,000 per year, then you would purchase a life insurance policy for $750,000. But you might want more if you want to pay for your kids' college, or pay off your family's mortgage, for example.
It is not unusual for individuals to seek $1 million in life insurance. Generally, you'll probably want to get as much life insurance as you can comfortably afford each month. For couples, discuss your life insurance options with your financial planner, accountant, and estate attorney to make sure you get the best coverage for your needs.
Ronda Lee is an associate editor for insurance at Personal Finance Insider covering life, auto, homeowners, and renters insurance for consumers. She is also a licensed attorney who practiced litigation and insurance defense.