We’ve got good news for you – you can!
But there’s a lot to know.
This article will review your opportunities, options, obligations, and limitations.
Quick Article Guide
- Replacing Income, Paying Off Debt
- Is Your Spouse On Board?
- Protecting Loss of Income
- Protecting Your Home
- Covering Your Children’s College
- Covering Funeral Expenses
- Life Insurance for your Stay-At-Home Spouse
When clients call us to purchase life insurance for their spouse, they tell us they have two primary worries:
- My spouse is the breadwinner. If he/she dies and that money’s gone, I don’t know what I’d do.
- If my spouse dies, I will need money to pay off so and so.
The Survivor’s Financial Responsibilities
Many people we speak to are unaware they’re responsible for their spouse’s debt at time of death. “All debts are due at the time of death”…this means that if you are unable to pay your deceased spouse’s debt, creditors have the legal right to pursue legal action. It’s a common cause of bankruptcy.
Sounds a bit harsh, doesn’t it? This situation applies to a mortgage, a car note, medical bills, any debt that is outstanding. This is why financial advisors advise purchasing insurance on your spouse and vice versa as your family’s safety net. It’s not meant to make you better off financially, but allow survivors to maintain their standard of living.
As they say, “It’s easier to give garlic to a vampire than get a husband to apply for life insurance.” Sad, but true. If you fall into this category, be sure to tell us; we need to know if your spouse is on board.
We understand that men in particular are fearful of facing their mortality, and/or distrustful of the medical community. They often avoid having medical exams until something’s wrong.
Allow us to help you. Explain to us the level of your spouse’s cooperation; are they willing to complete a free in-home physical including a blood and urine sample? If not, we’ll help explore “non med” (no medical exam) options.
Will your spouse be willing to do a phone interview of their health history? If your answer is “none of the above”, then you’re likely going to be limited to a maximum of $25,000 in life insurance. At minimum, they’ll need to sign an application. For obvious reasons, we’re not allowed to put money on the life of people, including a spouse, without their knowledge.
A primary reason for purchasing life insurance on a spouse is to replace the loss of their future income.
For example – let’s say you’re a stay a home mom and your husband makes $5,000 dollars a month. After taxes, this is roughly $3,500 a month take home. In this situation, if your husband passed away, your family would be without the $3,500 dollars a month needed to pay utilities, put food on the table, put gas in the car, etc. Read this article for more on this topic and help in determining your appropriate amount of life insurance.
You may also want to consider life insurance for your stay-at-home spouse as well. I’ll explain why later in this article.
Buy Young, Get More and Pay Less
The younger you are when you buy the insurance, the more years of potential income you’ll need to replace. Your agent will help you determine this policy amount, which is called the policy “face value” in insurance jargon. The younger you are, the lower your rates will be, since insurance cost is based on mortality risk.
Insurance companies use “income multipliers”. For example, an average 35-year-old has about 30 working years ahead of them. As a result, an insurance company will allow someone in this age bracket to buy a policy that will replace 30 years of future income. Let’s say you make $50,000 a year and you are 35 – in this example, you’re allowed to purchase up to $1.5 million of coverage. Sounds like a lot of money…and it is! You have a lot to lose if your “money machine” is no longer available.
If you are 65-70, the insurance company will typically limit the amount of coverage you can buy to about 5-10 times your income. These guidelines can be somewhat flexible and vary with company to company. Some insurance companies will also consider net worth, debts, other income, etc. This U.S. News article that will help you pinpoint the best age to buy life insurance.
A majority of our clients also buy insurance on their spouse for mortgage protection, protecting the family home. Let’s say together you and your spouse owe $200,000 and you still have about 20 years left on your mortgage. In this situation, if something happened to your income earning spouse, it’s likely it may be impossible for you to cover the bills and pay the mortgage on your one or no income.
In this particular circumstance, you would want the policy to last at least as long as the mortgage and cover the full mortgage amount.
For help in comparing benefits of Mortgage vs Term Insurance, read this article.
Purchasing insurance on your spouse can also be used to provide a college fund for children. Let’s face it, it’s hard enough to put away money each month for our children’s college funds after paying bills, but what if your household income is suddenly cut in half or even reduced to nothing? To ensure that your children are able to go to college, it is very common to purchase life insurance for this purpose.
According to collegedata.com, as of February 2018, the average cost of a 4-year degree at a private university in the United States is currently $138,960. In 15 years, this number is expected to double.
To calculate the amount of coverage you would need and the appropriate length of your “term” (how long you need insurance), subtract the age of your youngest child from 23 (the average age children graduate college). So if you have two children ages 4 and 6, subtract 4 from 23, which is 19. 19 is the minimum amount of years you will need, so I recommend a 20 year term for $500,000. (This number is adjusted to reflect the rate of inflation mentioned above) This policy will ensure that if you or your spouse pass away before your children graduate college, they will have enough money to finish their degrees and get a good start in life.
Many of our clients buy insurance on their spouse to handle funeral expenses. Funerals are not cheap – in fact, according to Parting.com, as of January 2018, the average funeral in the United States currently costs almost $10,000. Some funerals and “final expenses” can even run upwards of $20,000, and this number is only going to increase with time. For more information on this please see this article on ehow.com.
Another question we get daily is, “can I buy life insurance for my mother/father?” Yes you can – there’s a separate set of guidelines which we will address in another article. It’s common for children to buy policies to cover the cost of the parents’ burial and final expenses. Our article on burial and final expenses will help you with the guidelines of what you’re able to buy with and without significant health issues.
Be advised that your parent needs to be involved. If they’re unwilling or unable to speak with us by phone and authorize your buying insurance, we can’t help you. As mentioned earlier, it’s illegal to buy life insurance for someone without their knowledge and written permission; they have to sign an application and authorize accepting the policy before it can be activated.
Life Insurance for My Spouse’s Unforeseen Medical Bills
This is a tougher one to estimate, but should be prepared for, nonetheless. In addition to funeral expenses, you should consider hospital bills and medical bills not covered by your medical insurance.
In most cases, before a death, there is a hospital stay. Unpaid hospital bills are one of the main reasons a family is forced to file bankruptcy.
Can I Purchase Life Insurance on My Spouse To Protect Our Estate For My Children?
Life insurance is also commonly used for estate protection or to cover estate taxes. Many spouses purchase life to cover estate taxes, make sure they are able to keep their wealth their wealth and assets intact and avoid being forced to liquidate a portion in a “fire sale”.
Two clients we helped in 2012 – Mr. and Mrs. B. of Topeka, KS – had three adult children. Their estate was valued at the time at approximately $6,000,000. They owned a farm and home, rental property, and a significant amount of machinery they were paying off. Mr. and Mrs. B wanted to ensure that when they died, their children would be able to keep the rental properties for their families. On advice of their financial advisor, they purchased a “second to die” life insurance policy to ensure their children would be able to inherit the family’s estate free and clear. To learn more, see this article on Bankrate.com.
“What if my wife or husband doesn’t work? Can I get insurance on them?”
Yes, you can!
Most insurance companies feel that a “stay-at-home” spouse is just as important to the household as the income earning spouse. The reason behind this is simple. Would you be able to pay for childcare, house cleaning, laundry services, taking the children to school, and still keep a full-time job if your spouse was no longer in the picture? According to financial adviser Clark Howard of ClarkHoward.com:
Stay-at-home spouses have a special need for life insurance. A new survey from Salary.com finds the “salary” such parents earn by dealing with laundry, kids, cooking, etc. is more than $121,000! That’s more of an attention-getting number than anything else because stay-at-home parents don’t actually “earn” that, but you get the idea. Should a stay-at-home spouse pass away, the remaining parent would have to suddenly pay for childcare and everything else a stay-at-home parent does on a day to day basis. That’s why it’s essential the parent at home have a policy.”
For these reasons, an insurance company will generally allow a non-working spouse to match their spouse’s insurance, up to $1 million. The working spouse’s coverage can be through their employer, a policy outside of work, or a combination of the two.
Can I Buy Life Insurance on my Ex-Husband?
Yes you can, as long as you’re still financially dependent upon him (or her), either through a divorce decree or other acceptable situation. It’s fairly common to purchase term insurance to protect alimony and child support. You’re also able to be the payor, and possibly the “owner” of the policy, the one who is legally allowed to maintain and make policy changes.
Of course, your spouse needs to authorize it and be on board throughout the process. You don’t want to end up being the subject of a 48 Hours episode!
A Spouse As Insurance Rider is Generally a Bad Idea
Regardless of the reason for life insurance, we highly recommend each spouse has their own policy if both are able to qualify.
Although the idea of having one policy to manage seems easier for monthly payments; attaching a rider to your policy is often less costly than 2 separate polices. Many of the policies with a spouse rider (Primerica used to sell these) has a reduced benefit for the surviving spouse. If all of a sudden your spouse dies leaving you a single parent, you would likely need more life insurance, rather than less.
Another warning about these policies is that the policy ends if either party dies. If the survivor is in poor health at that time, they could very well find themselves in a position where they could not find new life insurance.
Because of these pitfalls, few companies today offer spousal riders.
Do you have questions about getting life insurance on your spouse, or would you like a quote? Please call us, we are here to help. Toll-Free: 855-247-9555.
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