Many dual-income families often ask if they need life insurance. While the benefits for single-income households might be more obvious, do you really need a policy if both you and your spouse bring home the bacon? In this guide we’ve got everything you need to know about life insurance for dual-income families and if it’s worth getting coverage.
Why do dual-income families need life insurance?
Life insurance works for plenty of different households, including dual-income families. Initially, you might feel that it’s not as pressing–if one person passes away, the income from the surviving spouse is still available.
But looking at it through that specific lens probably isn't the best way to go about things. After all, dual-income households are accustomed to living with both spouses' earnings. One of those income streams disappearing could altogether remove your financial stability.
Mortgages, debts, and other living expenses would all take a hit, increasing the burden on the surviving spouse in the process. Then there are the funeral costs to think about, not to mention the grieving process.
It might all sound a bit morbid, and in an ideal world, the situation is something you'll never need to face. Still, there's nothing wrong with having a financial plan like life insurance in place, and it can even help you build wealth while you're still alive (more on that shortly).
Do I still need it if we’re both on high incomes?
We salute you if both you and your partner have high-earning jobs, but it's still worth getting a life insurance policy. Even the highest earners still crave financial stability, and suddenly losing half of your income can significantly impact the family's way of life.
It's the quality of life that is particularly important. It's hard enough moving on if a loved one is no longer around – but circumstances become even more testing if you're faced with changing your living circumstances.
Costs such as childcare and home maintenance quickly add up and become harder to maintain if half of the household’s income disappears, no matter how much money you might make.
With a life insurance policy, you can, at the very least, maintain your way of life, with the death benefit acting as additional income. It will help with day-to-day costs as well as larger outgoings like mortgages, school fees, and debts.
What type of life insurance should we get?
Individual or joint life insurance?
The natural assumption is to get a joint life insurance policy if you and your partner both have an income. There are two primary types of joint policies: first-to-die and second-to-die. With the former, the surviving partner would need to take out a brand new policy should their spouse pass away, meaning you would be charged at your renewal age (the older you are, the higher the premiums).
A second-to-die policy doesn’t have the same concerns, but it still leaves you needing to burden the earnings left by your spouse, as this particular form of life insurance doesn’t kick in until both partners are no longer around.
On paper, a joint policy might make sense. But life insurance is one of the only times a couple might decide to do something separately. This way, you avoid the complication of needing to renew your policy if one spouse dies. You also don’t need to wait for both of you to pass away before your family can access the death benefit.
Term
Assuming you decide to get two single life insurance policies, all that's left to do is decide on the type. A term policy gives you coverage for a specific amount of time, usually between 5-30 years. If you pass away during this period, your beneficiary will receive the death benefit.
However, if you don't die (good times), the policy expires, and you'll be charged at your renewal age should you wish to carry on with the coverage. Term life insurance is usually the cheapest option, but it has the fewest benefits, with the only real one kicking in when you die. Which, you know, isn't exactly a win if it happens.
Permanent
As the lesser-known life insurance, a permanent policy has all the benefits of term coverage as well as providing contributions while you're still alive. That's because a permanent policy allows you to build wealth and access it later in life. This happens via the cash value, which you pay alongside the death benefit. As a result, both of them grow over time, and you can withdraw the cash value a little further down the line.
If you opt for the index universal life insurance (IUL) option in a perm policy, you can see impressive growth of 6%-8%, with returns calculated on an index much like the S&P 500. However, it also features a cap and a floor, allowing you to make returns of up to 12% while benefiting from not losing any money if the market goes down.
Lastly, a permanent life insurance policy is tax-free. When you withdraw the money, you can do so via a 0% loan to yourself. And because you can’t pay yourself tax, it’s all entirely tax-free. The loan is paid back via the death benefit when you pass, with the rest going to your beneficiaries. All of a sudden, a permanent life insurance policy becomes a form of investment and allows you to build for the future while covering the family if anything goes wrong.
In conclusion: life insurance for dual-income families
If you’re a dual-income family, then life insurance should be a high priority. It allows you to maintain the same lifestyle if the worst were to happen and ensures there’s still some flexibility from a financial perspective. Life insurance for dual-income families is just as important as it is for any other type of household, and it can even let you build wealth while you’re alive by acting as a form of savings account.