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Buying Life Insurance With Your Spouse

Updated
David Chang, ChFC®, CLU®
Author: David Chang, ChFC®, CLU®
David Chang, ChFC®, CLU®
David Chang, ChFC®, CLU®
Writer, Consultant

David S. Chang, ChFC®, CLU® is an award-winning entrepreneur, keynote speaker, author, and consultant. He has over two decades of experience in the wealth management space and has been featured in dozens of news, radio, and podcast programs nationwide. He currently works as Head of IoT for the West Region of a Fortune 200 company. He is a graduate of the United States Military Academy at West Point and currently a Lieutenant Colonel in the California Army National Guard. He is an East-West Graduate Degree Fellow and has an MBA from the UCLA Anderson School of Management.

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Life insurance policies can help provide financial peace of mind in case of a policyholder’s death. Spouse life insurance is a policy that can provide a payout to the policyholder if their spouse passes away, and it's intended to help the surviving spouse (or other beneficiaries) make up for income or services the deceased spouse provided. Read on to learn how spouse life insurance works, its benefits, and how to buy life insurance.

How does spouse life insurance work?

Spouse life insurance pays a death benefit to the surviving spouse. If you purchase a policy covering your spouse, you pay the premiums and are the primary beneficiary, though you can designate other beneficiaries, such as a child.

Once someone has applied for a spousal life insurance policy, the insurance provider determines a quote, based on the death benefit amount, age, gender, health factors, lifestyle factors, and the type of insurance policy. If the quote is accepted, the policyholder signs insurance documents and begins making premium payments.

What are the types of spouse life insurance?

Term life insurance is the least costly, but only lasts a certain number of years. As long as the premium is paid, coverage continues until the end of the term, or until your spouse passes away. If your spouse outlives a term policy, the policy expires, and no benefit is paid out.

Permanent life insurance, also known as whole life insurance, provides coverage for your spouse’s entire lifespan. Permanent policies are more expensive than term policies, but offer more benefits. Besides lifetime coverage, they offer a cash value component. As you pay your premium, your plan accrues a "cash value," acting as an investment vehicle. The cash grows tax-deferred, like a 401(k) plan or individual retirement account (IRA). According to Consumer Reports, the average annual rate of return on a whole life policy is 1.5%. While that's a low growth rate, it does beat the interest rate on most banking products.

Both term and permanent policies have their pros and cons. Choosing the right type of spousal insurance policy depends on your financial situation, your investment strategy, and the type of coverage you want.

Should you get separate or joint life insurance policies?

Separate life insurance policies are the most common way families protect themselves. If one spouse is unable to qualify for a separate policy, a joint policy may be more beneficial. A joint life insurance policy may provide the same level of protection, but is usually a permanent whole life policy. These are often cheaper than two individual permanent policies.

What is joint life insurance?

A joint life insurance policy is a single policy that covers two people. It is typically only offered to married couples or domestic partners. Some joint policies are term policies, but most are permanent life insurance policies. Joint policies may be a good way to get coverage if one spouse has difficulty qualifying for an individual policy. Joint policies, however, are generally less flexible than individual ones.

Joint policies come in two forms: first-to-die and second-to-die. The first-to-die policy is like an individual policy. When the first spouse dies, the surviving spouse receives the death benefit as the primary beneficiary. If the surviving spouse wants additional coverage, they need to apply for a new policy. First-to-die policies are generally more expensive.

A second-to-die policy, also known as survivorship life insurance, pays the death benefit after both spouses or partners pass away. Second-to-die policies are for the benefit of other surviving beneficiaries (such as children or grandchildren).

How to buy life insurance with your spouse or partner

There are three primary ways to buy life insurance with your spouse or partner.

Group life insurance through your employer

Many employers let you buy supplemental life insurance. So what is supplemental spouse life insurance? It's also known as voluntary spouse life insurance, and it's coverage you buy for a spouse or partner. The coverage amount is guaranteed, which means you don't have to take a medical exam to qualify. There is less flexibility in coverage, and if you leave your employer, you lose the supplemental spouse life insurance.

A spousal rider

Many life insurance companies allow a policyholder to add a spouse to an existing or new policy. A spousal rider offers additional life insurance coverage under the same policy. It is generally less expensive than a separate policy, but the coverage amount is lower. Each life insurance company has different limitations on eligibility and premium rates.

Life insurance companies

To find the best life insurance companies for a spouse or partner, shop around and get multiple quotes. By shopping around, you may find a company that best fits your needs and budget. Some companies may offer better value than an employer or spousal rider.

How much life insurance do spouses need?

The amount of life insurance someone needs depends on how much income or other support the insurance needs to replace to provide for loved ones. Many families only purchase a life insurance policy for the primary breadwinner. However, just because one spouse doesn’t contribute income doesn’t mean he or she shouldn’t also consider a life insurance policy. A spouse who is a homemaker, for example, provides valuable household services that can be costly to replace. Spouse life insurance can help cover the cost of maintaining the household.

One rule of thumb is to multiply annual income by 10 and add it to all debts. If someone has debts of $250,000 and a salary of $50,000 a year, using this rule of thumb means multiplying that salary by 10 to get $500,000, then adding the $250,000 in debts to get a $750,000 policy.

For a more individualized calculation, use the DIME formula. The total amount is a good starting point to determine how much life insurance you need. This involves adding up:

  • Debt: Total outstanding bills plus the cost of final expenses
  • Income: The number of years of income to replace (including the loss of labor a non-working spouse performs)
  • Mortgage: The outstanding balance of a home mortgage
  • Education: The estimated future education costs for children

What type of life insurance policy is best for married couples?

The best life insurance for families depends on the family’s income and needs. Term life insurance policies may be the best option for young married couples. Each individual gets their own policy, or they can get a joint policy for a lower premium. Permanent life insurance policies may be best for married couples who are older. The life insurance is guaranteed, and the cash value can help with college bills or paying down a mortgage.

Term life insurance is the most affordable but only provides protection for a limited time. Permanent life insurance provides protection indefinitely, but it can be costly. Married couples can buy separate life insurance policies or a joint policy. There is no one-size-fits-all life policy.

Life insurance for domestic partnerships

Not all states and insurance companies offer domestic partnership life insurance. Research your state's laws and see which life insurance companies cover domestic partnerships. For many employers, supplemental spouse life insurance covers the life of your spouse or a domestic partner. Ask your employer’s group life insurance provider to find out.

People who are not legally married may still be eligible for spouse life insurance coverage. They may need to provide additional documentation during the underwriting process. These documents show evidence of jointly owned assets, debts naming both individuals, and wills to prove “insurable interest” in each other.

While joint life insurance policies may not be available for all domestic partnerships, individual policies are not dependent on marital or partnership status. By law, life insurance companies can’t cover an individual without insurable interest, however. This means that a partner would have to experience financial hardship upon the policyholder's death. For example, you can’t purchase property insurance on your neighbor’s house, because you don’t have an insurable interest. You only need to prove insurable interest at the time of your life insurance purchase.

FAQs

  • Yes, you can take out a life insurance policy on your spouse. You cannot, however, take out a life insurance policy on your spouse without their knowledge. You must get their consent, and they must personally sign the policy.

  • While the surviving spouse is typically the primary beneficiary, the policy owner can choose any person(s), charity, or organization as the primary beneficiary. You can also name multiple beneficiaries, and distribute the death benefit according to a percentage that you designate.

  • Many employers let you cover a spouse or partner through supplemental and voluntary spouse life insurance. Contact your employer’s group life insurance provider for details.

  • Life insurance policies, even joint policies, are based on the policyholder's age, health conditions, coverage amount, and any potential riders or options.

  • Dependent life insurance pays a death benefit in the event a covered spouse or dependent (such as a child) dies. This type of policy typically covers funeral and burial expenses. It can also be used to cover the services a non-working spouse provided, such as childcare and home maintenance.

  • There are no life insurance beneficiary rules about your spouse. As the policyowner, you have the right to choose any person(s), charities, or organizations as beneficiary. Life insurance beneficiary rules also give the policyholder the right to name multiple beneficiaries, and distribute the death benefit by a percentage that you designate. If you live in a community property state, however, community property laws may override who you designate as your beneficiary. Spouses who live in a community property state have an equal share of all assets and income earned during the marriage. If you purchased a life insurance policy with community property income, your spouse may be eligible for half or a portion of the death benefit even if he or she is not listed as a beneficiary. Your beneficiary gets whatever is left over.