Life Insurance: A Couple’s Journey to Financial Security
As a new parent, the need for life insurance became a significant topic of discussion for my husband and me. We quickly realized that our individual preferences for coverage differed. After consulting with a financial expert, we learned that having different types of policies is perfectly acceptable. The most crucial aspect is understanding the benefits offered by each policy and the ‘why’ behind choosing them.
My journey into life insurance began after our wedding in 2021. It felt like a necessary step as we started building our lives together, combining finances, and investing in shared assets. However, my husband’s view was initially less enthusiastic, and the conversation kept getting delayed.
In 2023, the arrival of our first child created a new sense of urgency. I set a firm deadline: by the end of the year, we both needed life insurance coverage. This was our way of planning for the unexpected and ensuring our finances would be protected in a worst-case scenario – specifically, the costs associated with childcare if one of us were to pass away.
Different Coverage, Similar Goal
When we started shopping for policies, we realized we were interested in different types. My husband preferred term life insurance, while I leaned towards whole life insurance. We decided to consult a financial expert to ensure we were both making sound decisions.
We spoke with Eleanor Johnson, a CPA and CLU, and the founding principal at Highland Capital Brokerage.
Johnson emphasized the importance of life insurance as a key financial planning tool, due to its three unique tax advantages: income-tax-free death proceeds, tax-deferred cash growth, and the ability to tax-efficiently access cash during one’s lifetime.
“You can think of life insurance as an asset class that can provide families with different benefits depending on their situation,” Johnson said. “Of course, the most obvious is that life insurance provides an income-tax-free death benefit that is paid out to the policy beneficiaries and gives them the ability to pay off debts, continue to send kids to school, or just gives them time to grieve.”
She also highlighted that some policies, such as whole life, can have benefits even while the policyholder is alive, by assisting with retirement and the cost of long-term care.
Assessing Personal Needs
Johnson suggested that couples begin by identifying their specific needs and how life insurance can address any financial gaps.
“Sometimes if a couple disagrees about whether or not to get life insurance, it’s because they don’t understand the benefits that coverage can provide them,” she said. “People often buy insurance because they owe someone or because they love someone. So, if they have a responsibility to anyone else, the cost of buying some amount of insurance to cover that need can be surprisingly low. Plus, most people can qualify for life insurance at some level.”
She assured us that it’s perfectly acceptable for couples to have different policies.
“A couple doesn’t have to have the same kind of coverage,” Johnson said. “If one wants term insurance and the other whole, that’s fine, as long as they understand what their policy could provide for them and their family in the future. The key is buying the amount of coverage that you need.”
Understanding Policy Benefits
Johnson explained the attributes of each policy.
“Term insurance really just provides an expensive, predictable source of liquidity during the policy term set up at issue,” she said. “Whether that’s 10, 20, or 30 years, and then it’s gone.”
My husband, was inclined to start with term life insurance because of its lower monthly premiums.
I, on the other hand, preferred whole life insurance, for its lifelong coverage and potential for building cash value.
Johnson elaborated on the benefits of whole life insurance:
“This type of insurance can be more expensive initially, but is a better value in the long run,” she said. “Especially if you structure your policy so it builds cash if you need it or includes living benefit riders, such as long-term care, that can cover you if you get ill or injured.”
Johnson recommended utilizing a life insurance calculator to determine the appropriate amount of coverage for each person.
“Based on your coverage estimates, you can start pricing out what policies might cost you,” she said. “If you can only afford term insurance now, that might be the right option for you. But if you’ve already funded your 401(k) this year and you want coverage that will last a longer time period, or maybe even build up cash inside of it that you can use during retirement, you might want permanent insurance.”
Our conversation with Johnson helped us view life insurance within the context of our comprehensive financial strategy. Given our differing incomes and diverse financial portfolios, we embraced the idea of separate policies. Both of us plan on securing our chosen coverage before the end of the year. Given that life insurance costs are typically lower when you are younger, we decided that now was the best time to act.
Originally published in October 2023.
