Personal Finance Essentials
Life Insurance for Married Couples
A 35-Year-Old With Three Kids Needs $1 Million in Life Insurance
Most Have a Fraction of That
If you are married, have young children or support family members financially, you have a responsibility to make sure that your death will not impose a financial burden on those who depend on you. Life insurance exists to fulfill that responsibility.
The amount of coverage you need depends on your age, health, income, expenses and the number of people financially dependent on you. A 35-year-old earning $50,000 a year, married with three children under age 10 and a stay-at-home spouse, would typically need $1 million in life insurance – enough to replace the lost income for the surviving spouse. Your specific number may be different depending on how long you want to provide income replacement and how much you expect your spouse to be able to earn independently.
Too often, the only coverage people carry is through their employer – a policy that may be far too small and that disappears when they change jobs. This leaves surviving spouses scrambling, forced to return to work or take second jobs, with children who cannot afford college. Review your coverage regularly and make sure it reflects your actual obligations.
A Warning About Mortgage Life Insurance for Newlyweds
Mortgage life insurance is frequently pitched to new homeowners, and it is a poor product for most people. The appeal is obvious: a young couple stretches to afford their first home and worries that if something happened to one of them, the other couldn’t make the payments. Mortgage life insurance appears to solve that problem at a low annual premium.
Here is the problem: with each monthly payment, the outstanding mortgage balance declines – and so does the death benefit. The coverage shrinks as the years pass, but your need for financial protection does not shrink at the same rate. Worse, if one spouse dies, the insurance company pays the lender directly. The surviving spouse never sees the money, even if it would be better used elsewhere. A standard term life insurance policy typically provides far better protection at a comparable or lower cost.