Life insurance is a difficult topic for some people to talk about. It necessarily involves contemplating your own death, or the death of a spouse. Unfortunately, not talking about the very real possibility that one or both of you could meet an untimely end is not an effective planning strategy. Therefore, every couple should educate themselves about life insurance, how much is necessary and which spouse should have the more comprehensive policy.
Choosing Type
The two main types of life insurance policies are term and whole life. Term insurance covers the insured for a given period. It can be as short as a year or up to 10 years or more. If the insured dies during the term, the insurance company pays the beneficiary the face value of the policy.
Whole life policies are kept for all, or at least most, of the insured's life. They build up equity as the payments accumulate from which you can borrow, or you can use it as collateral on a standard loan. Whole life policies are more expensive, as the likelihood that the insured will die while under the policy is far greater than it is with term coverage.
Calculating Coverage Amounts
Evaluating coverage amounts involves totaling your assets and liabilities, the expected funeral costs in the event you die during the coverage term and the number of dependents you support. When you buy life insurance for your spouse, the same calculations apply, but there are often less tangible items to consider.
If you are married to a stay-at-home spouse, that doesn't necessarily mean you don't need to buy coverage. Even if the spouse is not contributing to the family income, she is providing needed support that must be replaced upon her death, often at a cost. If it is her primary responsibility to care for the children, manage the finances, do the shopping, plan meals and all the other valuable things stay-at-home spouses do, you, as the survivor, will likely need paid help to replace that effort. After your initial calculations are complete, add in the additional costs of such help. Another consideration is the income lost as you take time away from work to help stabilize your grieving family.
Purchasing
You are permitted to buy life insurance on someone else and make yourself the beneficiary, but it must be with the consent of the insured. You must also demonstrate that you have an "insurable interest," according to Michael Musselman at Garden State Life Insurance. This means that you will be affected financially in the event of the insured's death. Just because you are related to or married to the insured, it does not automatically mean that you have an insurable interest. If you have no dependents and your spouse does not contribute financially to the marriage, you may have difficulty proving that you'll be financially impacted by your spouse's death, unless your assets and liabilities are such that the cost of a funeral would cause undue financial harm.
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