Newlyweds Get Up To Speed on Life Insurance

Brent and Angela had led fairly live-for-the-moment existences before getting married, but soon after their nuptials they wisely decided to slow down and plan for the future. First up was life insurance — what type and how much. They engaged a local financial advisor to help them get up to speed.

The advisor began by noting that younger couples such as Brent and Angela usually need the most coverage because typically they have the largest financial responsibilities (raising children, paying a mortgage) and the fewest assets. Although Brent and Angela didn’t have any children yet, they did have a sizable mortgage that neither could likely handle on his or her own.

The basics of type

Like many people, Brent and Angela had heard the words “term” and “whole life” (or “permanent”) used in relation to life insurance. But the particulars escaped them.

With term coverage, their advisor explained, they could choose the amount of coverage they’d want over a specified period. If the insured individual died during that period, their insurer would pay out a death benefit to his or her beneficiary. The policy wouldn’t, however, build up any value other than that benefit.

A whole life policy, on the other hand, would amass a cash value along with its death benefit. This could be a helpful opportunity from a long-term investment standpoint. Plus, the couple could, if necessary, access that cash value via a policy loan. (Such a loan would reduce the death benefit and cash value.) Because of these and other benefits, the premiums would be higher than for a term policy with the same amount of coverage.

Where to begin

Next, the advisor suggested calculating how much money their young and, for the moment, small family would need to spend annually to maintain its current standard of living. Much like a business, Brent and Angela should look at their expected cash flow.

Using conservative earnings, inflation and tax rates — and examining items such as current investments, retirement plans and any other resources — the couple could compare the amount of cash flow generated with the amount needed to cover the projected expenses.

Their advisor warned them that they might be surprised at just how much cash flow the two might need — especially if children enter the picture. She also reminded them that a policy might have to replace decades of earnings.

A fundamental need

Brent and Angela admitted to feeling a little sheepish about not being more familiar with the ins and outs of life insurance. But, their advisor assured them, everyone should review the basics and their respective insurance requirements regularly.

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