Marriage and Life Insurance: What You Should Know If You are Going to Get Married

 Few decisions change your life more than marriage. Getting married marks a "before" and "after" in your life path and leads to important transformations in every sense, including in the fiscal and legal areas. It is also a milestone to keep in mind in terms of life insurance. If you do not have a policy yet, it might be the moment to start thinking about one. And if you do, it's a good time to make adjustments and revisions.

Keep reading to find out how marriage affects your life insurance and what adjustments you should make to yours once you're married. Read carefully, as you can save a lot of money or substantially improve your policy coverage.

Marriage and Life Insurance: Table of Contents

New Family, New Responsibilities

Why Do You Need Insurance When You Get Married?

What Insurance Is Best for Newlyweds?

New Family, New Responsibilities

Marriage, a turning point in the lives of millions of people. A moment where you take on a transcendental change, and from then on, your life will never be the same. If you are about to get married or have done so a little while ago, there is no doubt you know about the changes the wedding will introduce into your life. In addition to the sentimental part, you should keep in mind that you will be starting a new family, and that certainly means new responsibilities.

Sometimes these responsibilities are not evident. But you must keep in mind that, starting from the moment you enter into a marriage, everything mixes: your finances, your debts, your incomes, your businesses... everything becomes interwoven with your significant other, so that individual responsibilities become joint responsibilities.

If new expenses, such as mortgages, are added to this, you are left with a highly unified financial situation. Not to mention when children come along: from that moment on, your family will have dependents, and the responsibility gets even bigger.

Life insurance is a way of guaranteeing that these responsibilities are backed by a tool with long-term solvency. It is a simple, stable, effective tool for providing the financial support that a new family in a complicated situation might need. Of course, life insurance has a fundamental purpose: indemnification for someone’s death. And this indemnification—death benefit—is also an income replacement. For survivors, it may be the only of moving forward after the death of the person providing all or most of the income for the family unit. That is why it is so important to have a life insurance policy that gives your family security if one of the breadwinners passes away.

And remember: the sooner you take out a life insurance policy to protect your family in case of your death, the better, because it will be cheaper. Insurers offer better prices to young people, because they have less risks and have a longer life expectancy.

Why Do You Need Insurance When You Get Married?

Maybe you had not thought about needing a life insurance policy until getting married, but now you do need one. The combination of your responsibilities with those of your significant other is a good reason to have a coverage against possible misfortune.

Keep in mind that married life will surely mean greater expenses: maybe you need a bigger house, or a new car, or you just need to meet the cost of having children. This increased level of expenses puts the family in danger, which can be left unprotected if the primary breadwinner passes away. Even in cases where both spouses work, the surviving spouse can fall into hard times without the income of the deceased. Or, it is also possible that the surviving spouse may need to leave his or her job to take care of the children or recover from the impact of the loss. In all of these circumstances, life insurance is a life raft: it is a way of providing money that can be used to alleviate the situation.

Debts are another important reason to have a life insurance policy. If one spouse goes into debt and dies, the surviving spouse will inherit those debts and will have to deal with them. Again, life insurance can be used to solve this occurrence in a simple manner.

Many young couples also have shared businesses or depend on a business for income, so the death of one of the spouses may cause the business or company to fail. This is another good reason to have life insurance, to support this foundation if some unexpected, irreversible event occurs.

Finally, one of the important reasons to have insurance after marriage is to build a solid inheritance. Many people use life insurance as an instrument that functions as part of the inheritance to be left to their descendants. It can also be used as a mechanism to allow these descendants to receive the inheritance without having to pay out a part of it in inheritance tax: the insurance goes to taxes and the rest of the inheritance remains intact.

What Insurance Is Best for Newlyweds?

If you are already certain that, after getting married, you will need a life insurance policy, now you must think about what type of insurance is best for you. The most appropriate are the following:

• Term insurance. Much cheaper than permanent insurance, temporary or term life insurance is a good solution for young couples with an income that is still low. These are policies with a fixed duration and, after the expiration date, are no longer active. Many families use these policies to protect themselves during special times, such as their children’s early years or university careers. They offer a great advantage: with little effort, you can change term insurance into permanent insurance. It will cost you a little more, but you will save yourself from having to go through the qualification process.
• Permanent insurance. Permanent-type insurance is more expensive, but also offers greater benefits and better coverage. In this case, there is no term: it is active until the death of the insured, when the payout is given to the life insurance beneficiaries. Permanent insurance comes in several kinds: ordinary or traditional, universal, variable and variable universal. The type that is best for you will be relative to how much attention you want to pay to your insurance and how much risk you want to accept in managing it. In any case, remember that this type of insurance is built on top of savings accounts that allocate some of your money to investment and generate what is called cash value, meaning that you can use them for long-term savings.
• Joint insurance. In the world of universal insurance, there is a type that is very interesting for couples called “joint insurance.” This is a policy that includes both spouses, turning out to be much more cost-effective than taking out two. In exchange for this better price, conditions are generally placed on the payout. This is done in two ways. On one hand, there is payment after the first death, or ‘first to die,’ which assumes that the death benefit is paid at the first death of one of the spouses. On the other hand, there is the ‘second to die’ type, or payment after the second death, or life insurance with survivorship rights. In this case, the payout is made after the death of the second spouse, but until his or her death, a monthly amount may be received for maintenance.
• Group insurance. Group insurance or company insurance are policies that some employers—or unions, or other institutions—offer their employees. It is interesting, but their coverage is not always very broad and it is possible that if you lose your job, you also lose the insurance. This means that is minimum insurance and you should consider combining it with another policy. On the other hand, you can include your significant other in your group insurance and give him or her a certain level of coverage.

As you can see, there are many interesting options for taking out insurance to protect your family. Still, you should study how to organize your coverage to guarantee your payout, or payouts, if there is more than one life insurance policy in the family.

Generally, spouses will mutually name each other as life insurance policy beneficiaries. This way, it does not matter who passes away; the surviving spouse will receive the payout, which is made tax-free.

Since insurers allow you toname secondary, and even tertiary, beneficiaries, your children can also be designated as beneficiaries, in case both parents pass away at the same time. Or, the benefit can be left to the people who will be responsible for the minors in those circumstances. It is also common to leave the payout in a trust fund that will administer the money in the absence of the parents. Whatever option your chose, it is very important for you to review your policy frequently in order to be sure that the designation of beneficiaries is correct.

This first way of organizing insurance is the most common, but if the family has a certain income level, it is possible that the life insurance policy may complicate the inheritance upon the death of one of the spouses. This is due to the fact that insurance earnings, such as cash value , will go on to form part of the inheritance that is subject to taxes, and as such the inheritors will have to pay a significant sum to the public treasury.

The way to avoid this is for each member of the couple to buy insurance (the policy owner) and name the other as the insured, which in turn will designate the insurance owner as the beneficiary. In this type of cross-wise insurance, for example, the husband holds the policy, but the insured party is the wife, while the husband is designated as the beneficiary. Organizing policies has an advantage: it leads to significant fiscal savings.

The money is saved because federal inheritance laws include what is called marital deductions, which allow married people to transfer unlimited quantities of money between each other at the time of death without paying inheritance taxes. In this way, if one spouse knows the end is near, he or she may transfer the policy benefits to the other without a reduction in the sum due to taxes. Of course, the surviving spouse will not be able to do it him or herself and the accrued value, if not spent, will be transferred with tax.

As you can see, there is a lot to keep in mind when getting married. A responsible couple will take this step with care and perspective. And if they are responsible, they will get hold of a life insurance policy to give peace-of-mind to the family they just created with their marriage.