[US] Dual Income Life Insurance Question
[US] Dual Income Life Insurance Question
My partner recently started a new job. Prior to her employment I had been paying into my employer personal supplemental insurance as well as spousal insurance. Now that my partner has employer provided and options for employer supplemental life insurance, what should we be looking at doing? Do I stop my spousal life insurance? Or for dual income is it not bad to have both partners have self and spousal life insurance in case of things like lay offs? Also any general life insurance advice is welcome. I've never understood if it is wise to have supplemental life insurance provided by the employer or found in the open market. Thanks.
Wayyyy too long of an answer. But I have some experience and might as well not let it go to waste. Definitely doesn’t hurt to talk with a financial advisor about it.
Always a good idea to check out market rates but your employer provided one likely has better premium rates as part of the group and with part of the payment possibly covered by your employer.
Deciding how much life insurance you should get is dependent on your personal situation, your desired coverage, and your risk tolerance.
But it’s likely that both of you having spousal coverage is a little toward overkill. I’d be more concerned about your disability coverage or the coverage of the highest-earning partner, especially if there’s a large disparity in earnings.
The main reason many people get life insurance is to make sure a non-working surviving spouse has the resources they need to get by with the same lifestyle and hopefully in the same house. So when you or your partner is not working, it’s usually the working partner that you want to have the most coverage (perhaps aligned with what would be needed to comfortably “retire” which really means just live the same lifestyle but only off investment income).
The second reason people get life insurance is to help with the short term consequences and expenses. Funerals are expensive. Debt can pile up with end of life care. Taking time off work can cause income drops. Daycare costs might need to be incurred. This is usually where the spousal coverage comes into play. Typically much lower coverage to give the working, surviving spouse a temporary boost due to death-related expensive, but not retire. Child policies are similar.
The more savings or investments you have, the lower your true need for this insurance is. If you can already comfortably retire, then it’s not a huge deal if either one passes (financially). And you have the cash to pay for short term death-related expenses.
Disability is a bigger deal to many people with substantial savings. It can mean a serious increase in expenses (to handle the disability) with a simultaneous decrease in earnings.
But some people also treat life insurance as an investment or a way to hedge specific risks. If you don’t want to work again if your spouse/partner passes, you can get increased coverage. Or if you simply like the security of getting a lump sum if one of your passes early, the premium cost might be worth it. Those are a personal decision and risk/reward calculation only you can make.
On the open market, you’ll find term and whole life. Term insurance is much lower cost because it only lasts a certain period (term). Whole life can be paid as a continuous premium until you file a claim (someone passes). People who are serious about life insurance get whole life policies and treat them as a wealth building investment. Many have cash values, where part of your premium goes into a savings-like account that builds at a certain interest rate. If you’re thinking of this, talk with a qualified advisor. And get at least 2 quotes from highly-rated and stable insurance companies.
Thanks for your feedback
Thanks. For us, our incomes are relatively equal. Currently I make more, but I think my partner has longer term higher earning potential. I am not really looking at it as a wealth generating or retirement investment vehicle. Mostly looking into it as part of benefit elections and modifications since the rates seemed low. The main use for life insurance is really just for risk of untimely death. There are things like student loans, and we live in a high cost of living area as non renters so want the security for each other if something were to happen to not have immediate impact on life style. Both of our default work policies offer 1x to 1.5x annual salary. The supplemental coverage we were looking for each was to add an extra 2x or 3x salary. Child care is something we also think about in the event we have children in the next year or 2 as well.
When it comes to supplemental long term disability... What is considered a decent amount of coverage. If the included employer offers 40% salary, with supplemental up to 60%, how do I evaluate what is right for me? It's about 700 bucks year for the supplemental through my employer.
Without knowing the costs, it sounds like you’re good candidates for the supplemental life or even an additional life policy. A year of salary can go quite quickly, as can the time and the costs of taking it off work. Term can be fine to start with, then later in life as it becomes a larger concern (especially with kids) you may consider whole life. But if you have substantial liquid savings, then you might just be fine with the 1-1.5x coverage for now. Once again, just all about your risk tolerance and savings.
Disability is very difficult to plan for and make a purely rational decision about. There are so many moving factors with the medical costs and length of the problem. For people who want total security, that $700 can be well worth it to sleep soundly. For others with more savings and a little room in their finances to cut back expenses, it might not be worthwhile. The more savings and the more you can rely on your partner for income, the less important it is.
But tackling it from a quantitative perspective may help. For $700, you’re getting 20% of your income. It’s a low-cost premium because the risk is usually low (unless you have reason to believe you’re likely to become disabled). You can also shop for separate plans to see how the premium lines up against competitors. It’s also important to understand the elimination period (how long you have to wait before you can claim benefits) and if it will pay out if you can perform ANY job vs your actual profession.
This is a pretty decent article on an approach to disability coverage: https://www.usbank.com/financialiq/plan-your-future/health-and-wellness/is-your-employer-long-term-disability-insurance-enough.html
One other thing to consider is if you get insurance through your employer, you lose it as soon as you leave. Imagine if one of you has a long-term illness that puts you out of work before dying. All of the premiums paid by that spouse would be lost with no payout.
For myself, I have just enough supplemental insurance through my employer to cover funeral expenses for my wife (who is currently in school) and my kids, no supplemental insurance for myself. I should add a term life plan for me outside work, but have not done so yet.
Also, I think you can stack different durations to account for increased savings over time. For example, you might get a 10 year and a 20 year term life plan for 500K each. If you died in the first 10 years, your family would get 1M total. Hopefully in 10 years your savings has increased enough to live with a smaller insurance payout, but you could always add more coverage then, if needed.