​​A Guide to Buying Life Insurance for a Spouse

Updated

Unless they’re retired, most married couples or partners today share the family’s income and expenses. Many of these couples, particularly those with young children, are concerned about a survivor continuing to support the household if one spouse dies suddenly.

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One way families alleviate this concern is through buying life insurance. They find it a straightforward, simple way to mitigate the risk that a surviving spouse and children will be left devastated financially if one of the spouses is suddenly removed from the picture. 

This article will help you get a handle on spouse insurance, its different types, how to go about buying it, and how to find the right coverage if you decide it makes sense for you.

Why Do People Buy Life Insurance for a Spouse?

Whether by providing income or household/family services, each spouse or partner contributes economically to the relationship. Considering the significant financial loss to a family if one spouse dies can be overwhelming. As a result, they buy life insurance for a spouse for one of these three reasons:

Income replacement: In most families, both spouses provide some of the money needed for day-to-day expenses. These expenses consist primarily of household costs like paying for food, clothing, and shelter, paying debts like credit cards and student loans, saving for college tuition for kids, funding retirement plans, and much more. Life insurance substitutes for the economic loss suffered when a spouse passes away and eliminates the need for private or public assistance, like crowdfunding or Social Security.

Household services replacement: Most couples with kids share household responsibilities, or one of the spouses is the primary provider of services such as daycare for their kids, meals, laundry, household cleaning, transportation, etc. If one spouse passes away, a surviving spouse who works will need to either provide those services themselves or, most likely, hire a third party to handle them. Life insurance allows a working spouse to continue working by providing cash to pay others to perform necessary services.

College and retirement funding, debt payment: In addition to sharing income, most couples also share expenses. They both guarantee mortgage repayment and co-sign for car loans and credit cards. When one spouse dies, the survivor is legally responsible for the debt they both accumulated, and they become solely responsible for future needs like college funding and retirement savings. A well-thought-out life insurance program will pay off all outstanding debts and fund college and retirement needs.

Are There Different Types of Life Insurance for Spouses or Couples?

There are two different types of life insurance available for spouses or couples: individual life insurance policies and joint life insurance policies. Let’s look at both.

Individual Life Insurance Policies

One way spouses can be insured is through purchasing individual life insurance policies. Each individual is the owner of a policy on the life of the other spouse.

Life insurance companies offer two types of individual life insurance: permanent life insurance and term life insurance. 

Permanent life insurance is usually sold as whole life or universal life insurance. It has two components: the death benefit and the cash value.

The death benefit, also known as the face amount of insurance, is the dollar amount paid to the person named as the beneficiary on the policy when the insured dies. It is usually paid in a lump sum and is received tax-free by the surviving spouse. A portion of every premium dollar spent pays for the death benefit.

A portion of the monthly premium also funds the cash value. That money is deposited into the policy's cash value, where it earns interest at a rate determined by the insurance company and grows tax-deferred. Depending on the insurer, money in the cash value account can also be augmented by dividends paid by the insurance company.

As the cash value grows, it can be withdrawn or borrowed. Many policyowners use the cash value to pay for emergency expenses, help with the down payment for a home, or fund children’s college tuition. 

The cost of permanent policies remains level throughout the life of the policy. The policy will remain in force as long as the policyowner pays the premiums. 

Term life insurance is preferred by many couples because the cost is lower than permanent life insurance. All of the premiums paid, other than fees and commissions, are applied toward the cost of the death benefit; term life insurance accumulates no cash value. 

Term life insurance is temporary life insurance; it will stay in force for a period set by the life insurance company. If the insured dies during that period, the surviving spouse will be paid a lump sum cash benefit. If the insured outlives the period, the policy will expire without value. 

Many couples purchase term life insurance to cover temporary expenses, like mortgages and education costs. Once the mortgage has been paid off or the kids have graduated from college, they terminate their coverage.

Some couples will buy both permanent and term life insurance. This reduces their total cost of life insurance, builds cash value, and guarantees that they will have some life insurance in force for their entire life. 

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Joint Life Insurance Policies

Instead of buying two separate policies, one for each spouse, some couples prefer to buy one policy that insures both of them. Though it seems like it might be more economical to purchase life insurance this way, it’s not always the cheapest way to do it. 

Joint life insurance coverage is written as permanent life insurance, meaning that it includes a death benefit and builds cash value (described above). As discussed, permanent life insurance is more expensive than term life, which is why it can be more economical for both spouses to have their own term life policies.  

Many joint life policies are available with optional riders you can purchase to add what are referred to as “living benefits,” such as long-term care benefits, return of premium, and disability waiver of premium. 

There are two types of joint life insurance policies couples can purchase: first to die and second to die. 

First to die policies are similar to individual policies since the surviving spouse receives the death benefit when the first spouse passes away. But, upon the first death, the policy terminates, and that policy will no longer insure the surviving spouse. Unless the survivor has other life insurance in force, this can lead to a dangerous gap in protection for children and other dependent family members. 

Second to die policies, also known as survivorship life insurance, are different in that the life insurance company won’t pay a death benefit until both spouses have died, meaning that the original surviving spouse won’t receive a death benefit upon the death of their spouse. Only other surviving beneficiaries, such as children, will ever benefit from this type of policy. 

Should You Buy a Joint or Separate Policy?

Each type of policy serves a separate purpose.

Separate (individual) policies are for the benefit of the surviving spouse. They pay a death benefit to the survivor immediately upon the death of the spouse that passes away, who can then care for the needs of their children or other dependents, such as an aging parent. If a couple needs both paychecks to meet their financial obligations, this would probably be the best route to take. 

Joint policies, particularly second to die policies, can be more economical if a couple is primarily interested in creating a death benefit to provide for their surviving children. This can work well for couples where both spouses are high-earners and don’t need the other spouse’s income to provide for their family. 

How long it takes to get a life insurance payout will vary by policy type and insurer. 

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Key Steps in Buying Life Insurance on a Spouse

Buying life insurance on a spouse isn’t significantly different than purchasing life insurance on your own life for the benefit of others. Here are five easy steps to follow:

Determine how much coverage is needed: There are several good ways to figure out how much life insurance you need

First, a professional life insurance agent, financial advisor, or Certified Financial Planner can personally visit with you and do a comprehensive needs analysis to develop an accurate recommendation.

Beware of insurance agents who simply want to use a multiple of your income, like 10x or 12x; everyone’s situation is different, including yours. 

Also, many life insurance companies and associations offer online life insurance calculators that will ask you a series of questions and then recommend the face amount of life insurance you need. 

Decide on term life vs. permanent spouse insurance: The type of insurance you buy is as important as the amount you buy. Remember, term life insurance is for temporary needs and doesn’t accumulate cash value. On the other hand, though it is more expensive, permanent life insurance lasts your whole life and builds cash value. Consider a combination of the two.

Determine if a medical examination is needed: Whether or not an exam is necessary will be determined mainly by the insurer and the type of policy you buy. If the spouse to be insured has pre-existing medical conditions and may not qualify for a standard type of permanent or term life insurance policy, there are two other types of policies you can consider: simplified issue life insurance or guaranteed issue life insurance.

Simplified issue policies have short applications and require no medical examination. There are typically only 3–5 health questions asked on the application. Insurers are more likely to issue these policies to people with pre-existing conditions, but they often raise the premiums. There is no guarantee they will issue the policy; they are just more liberal with their underwriting. 

Guaranteed issue policies are precisely what the name states; they are guaranteed to be issued. No health questions are asked, and no medical exam is required. However, these policies are the most expensive on the market since the insurance company takes a considerable risk sight unseen. Face amounts are typically limited to $50,000 or less. 

Choose a beneficiary: This may seem obvious since we’re talking about spouse life insurance, but that’s not always the case. For example, if the life insurance is primarily for the care of children, or privacy and probate are a concern, a special trust can be created and become the policy’s beneficiary. An estate planning attorney can assist with trust creation. 

Beneficiaries on most policies can also be changed later in life if a spouse becomes mentally incompetent, there is a divorce, or the policyowner wishes to leave money to a charitable organization. 

Also, keep in mind that if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, or Washington), you’ll need your spouse's consent to name someone other than them as your beneficiary.

 Pick the right life insurance company: The health history and condition of you and your spouse will help determine what companies you get quotes from. Some companies specialize in insuring people with specific health conditions, like diabetes or high blood pressure. An independent life insurance agent can get you quotes from a variety of insurance companies.

The Best Time to Buy Life Insurance for a Spouse

The best time to buy life insurance for a spouse or buy any type of life insurance is when the person to be insured is young and healthy. Insurability and premiums are never more favorable at this time of life, so don’t hesitate to apply for coverage while you can.

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