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Jen Glantz
I started thinking about life insurance after my husband and I got married in 2021. Since we were starting to build our lives together, invest in joint assets, and combine some of our finances, it felt necessary. But my husband didn't agree, and the conversation around life insurance kept dropping to the bottom of our to-do list.
In 2023, we had our first child, and after she was born, I gave my husband a deadline. By the end of 2023, we both had to have life insurance coverage, no matter what. I wanted to make sure that we were thinking ahead and planning for the worst-case scenario. With life insurance coverage, our finances could be in a better place, and some future childcare costs could be paid for if one of us died.
Once we started shopping around for life insurance policies, we both found ourselves interested in very different types of coverage. My husband wanted term life insurance, but I wanted whole life insurance.
Before buying policies, we decided to speak with CPA and CLU Eleanor Johnson, founding principal at Highland Capital Brokerage, to help us understand if we were approaching this in the right way or if we should take out identical life insurance policies.
Johnson first told us that life insurance is an important planning tool with several uses due to three unique tax advantages: income-tax-free death proceeds, tax-deferred cash growth, and the ability to tax-efficiently access cash during one's lifetime.
"You can think of life insurance as an asset class that can provide families with different benefits depending on their situation," she said. "Of course, the most obvious is that life insurance provides an income-tax-free death benefit that is paid out to the policy beneficiaries and gives them the ability to pay off debts, continue to send kids to school, or just gives them time to grieve."
Johnson also shared that some policies can also benefit a person while they are alive, by subsidizing their retirement lifestyle or by providing in-home assistance for an insured who experiences a long-term care event.
"It's best to look at life insurance as part of your comprehensive financial planning," Johnson said.
Since getting life insurance can be an emotional and tough conversation because it involves death, Johnson recommends couples understand their needs and how insurance can help solve those planning gaps.
"Sometimes if a couple disagrees about whether or not to get life insurance, it's because they don't understand the benefits that coverage can provide them," she said. "People often buy insurance because they owe someone or because they love someone. So, if they have a responsibility to anyone else, the cost of buying some amount of insurance to cover that need can be surprisingly low. Plus, most people can qualify for life insurance at some level."
However, when I shared with Johnson that my husband and I both agreed we wanted life insurance but didn't agree on the type of coverage, she found that to be less problematic.
"A couple doesn't have to have the same kind of coverage," Johnson said. "If one wants term insurance and the other whole, that's fine, as long as they understand what their policy could provide for them and their family in the future. The key is buying the amount of coverage that you need."
"Term insurance really just provides an expensive, predictable source of liquidity during the policy term set up at issue," she said. "Whether that's 10, 20, or 30 years, and then it's gone."
Since my husband isn't so set on the benefits of life insurance, he is only willing to start off with a term policy, especially since the monthly premiums are usually much cheaper.
I'd prefer whole insurance, which provides a person coverage their whole life. Johnson shared that depending on a person's policy and how it's structured, you can build up cash in the policy that you can use to subsidize your lifestyle in the future or for retirement,
"This type of insurance can be more expensive initially, but is a better value in the long run," she said. "Especially if you structure your policy so it builds cash if you need it or includes living benefit riders, such as long-term care, that can cover you if you get ill or injured."
When deciding what type of coverage each person should take out, Johnson recommended we spend time using a life insurance calculator to understand what the right amount of coverage per person might look like.
"Based on your coverage estimates, you can start pricing out what policies might cost you," she said. "If you can only afford term insurance now, that might be the right option for you. But if you've already funded your 401(k) this year and you want coverage that will last a longer time period, or maybe even build up cash inside of it that you can use during retirement, you might want permanent insurance."
After speaking with Johnson, we started to view life insurance as part of our overall financial strategy. Since our income is different and our financial portfolios are not identical, we didn't feel like our life insurance coverage had to be either. As of now, we're both set on taking out different types of coverage by the end of this year. Life insurance tends to be less expensive based on your age, and we're not getting any younger.
This story was originally published in October 2023.
