Life insurance planning for couples
Work with both partners to make the most of life insurance strategies
When two people build a life together, finances can get complicated. Whatever a couple’s situation, it’s important that they find ways to safeguard their assets and accomplish their goals. “Life insurance is an important tool to help you protect your family and lifestyle options in the future, no matter what happens to you or your partner,” says Mike Vaughan, associate vice president for life insurance at Nationwide.
It’s important that advisors work with both members of a couple to provide them with appropriate options in light of their goals. Together, you can determine how to meet their specific needs.
Beyond replacing income
As couples jointly build their lives, they tend to rely on the labor and income of both spouses to support themselves and their family. Each member of a couple should have life insurance to make up for any potential income loss, cover death-related costs and keep the family on track financially should one partner die.
Even if a spouse does not work at a traditional job, they should still consider life insurance. Remind clients that the surviving spouse will have to find a way to replace the labor that their partner did at home. Couples should factor in that potential cost when calculating how much life insurance a non-working spouse should have.
Meeting the needs of blended families
Life insurance policies can be a useful estate planning tool for blended families. When second or even third marriages, as well as children from multiple marriages, are involved, it’s important for clients to take steps to ensure that their assets go to the beneficiaries they intend. “You don’t want to worry about family squabbles interfering with the distribution of your assets,” says Vaughan.
He recommends using life insurance policies as a way to help clients clearly designate beneficiaries. For example, a client might designate the child from a previous marriage as the beneficiary of their life insurance, while leaving other assets to their current spouse and children.
An irrevocable life insurance trust, or ILIT, can be part of a useful strategy for couples (particularly high net worth individuals) who want to designate permanent beneficiaries of a life insurance policy. The ILIT owns the trust assets, thereby removing them from the policy owner’s taxable estate. (The trust must be in place at least three years before the grantor’s death for this to be the case.)
ILITs can be particularly useful to couples whose estate exceeds the $10.9 million lifetime estate and gift tax exemption and who want to pass more money to their heirs. Note that ILITS are irrevocable, meaning grantors cede all control of trust assets. As a result, they may not be a good choice for clients who want to maintain control over where their assets go during their lifetime.
A couple’s insurability—how likely they are to be approved by insurance underwriters—is frequently based on age and health. So it’s important that couples think about obtaining insurance as early as possible, says Vaughan. Young couples are frequently able to lock in lower premiums, though they will pay premium costs for longer. It may be more difficult for older couples to find a policy. However, options like “first to die” policies can help older couples get coverage based on the age and health of the younger partner.
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