Feb. 16, 2021
With Valentine's Day over, many couples may find themselves excitedly engaged or ready to start wedding plans — and picking the perfect engagement ring is just the beginning.
- Before marriage, you and your partner should discuss finances, including life insurance.
- You'll want to know of any debt your partner has, and how insurance will be allocated if you divorce.
- You should consult your accountant and financial advisor before finalizing any decisions.
While much attention is given to the wedding budget, one part of wedding planning that if often overlooked is your life insurance. The various insurance considerations for people planning to get married include business ownership, real estate, and outstanding debts, not to mention the role life insurance plays in family and estate planning.
Insider spoke to family and divorce lawyer, Kimberly A. Cook, principal mediator at Dovetail Conflict Resolution, and Michael Duffy, managing director at The Merrill Center for Family Wealth, about how the questions you should be asking each other about life insurance before tying the knot.
1. Are you bringing any debt to the marriage?
If one person has substantial student loans or private debt, life insurance is often used to wipe the slate clean.
Duffy noted that if one person is wealthier than the other, sometimes a prenuptial agreement will require the richer partner to have life insurance for the poorer partner. The richer fiancee could also be required to pre-fund an irrevocable life insurance policy as a precondition to marriage.
If you have private student loans and are using life insurance to manage that debt or you already have life insurance policies in place prior to marriage, you need to discuss the particulars before walking down the aisle to avoid stress later in the marriage.
2. How will your children be taken care of?
If either person is bringing children from a previous relationship into the marriage, there should be a discussion about protecting the assets and inheritance of the children. For life insurance policies where the child is to benefit, a trust should be established because a child won't be able to access the proceeds if they're a minor.
3. Will there be a prenup?
Cook said a prenuptial agreement is like a life insurance policy in itself; you don't need it until you need it. She noted life insurance in the early stage of premarital planning offers some level of protection.
Duffy said that a divorce is where a prenuptial agreement is helpful. If you agree to the terms before marriage, it lessens conflict during divorce. He said that it is not uncommon for one party to be required to give permanent life insurance as part of a divorce proceeding.
4. Do you want joint life insurance or separate policies?
The well-being of children, spouse, and other family is a motivating reason for most to get life insurance — to cover the mortgage, education, and other expenses so that their family can continue after they die.
Certain life insurance products, known as joint life insurance policies, are geared towards married people Married couples can also get separate individual life insurance policies. Joint life policies are beneficial for high-wealth couples seeking to lessen the impact of inheritance and estate taxes on their beneficiaries, according to Mark Williams, CEO of Brokers International.
There are advantages and disadvantages to both individual and joint life insurance policies. The best option is the one that fits your family's finances and needs for the future — and you should consult your financial advisor, accountant, and estate planner before making any final decisions.
5. What will happen to your policy if you divorce?
While no one wants to dwell on this — especially before you're even married — unfortunately, some unions end in divorce. When that happens, life insurance policies are part of the financial discussion. For example, actress Aisha Tyler was ordered to pay for her ex-husband's $500,000 life insurance policy as part of their divorce settlement.
Cook said you should know whether your ex has a combination of permanent and term life insurance and whether or not you, your spouse, or your children are the beneficiary. Financial disclosures and property allocation for spousal and child support will count cash value life insurance policies, known as permanent life insurance, as an asset. However, term life insurance doesn't have real value until someone dies, so it's not considered an asset.
In certain places, life insurance is required as security for child support or spousal support. Cook suggests not only talking to your divorce lawyer, but also including your estate planning attorney in these discussions because if life insurance is required in your state that would extend for several years.
Cook said that naming an ex-spouse as a beneficiary of a permanent life insurance policy with cash value can be a way to resolve issues of liquidity and access to cash.
The bottom line: Getting married is a wonderful journey, and life insurance can protect your marriage. To figure out which life insurance products best fit your goals as a couple, it's worth having a discussion with your accountant, financial advisor, and estate planning attorney.
Ronda Lee is an associate editor for insurance at Personal Finance Insider covering life, auto, homeowners, and renters insurance for consumers. She is also a licensed attorney who practiced litigation and insurance defense.
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