The joining together of two lives is joyous. It’s also nerve-wracking. There are a number of adjustments couples have to make when thinking and planning for two. They may need financial protection they haven’t worried about before, because spouses now depend on each other for support. In merging two households and perhaps two careers, there are choices that couples may need to make as to which spouse has the best existing insurance coverage.
Becoming a couple means sharing responsibility with and for someone else. Both spouses may work, building a lifestyle that depends on two incomes. There will be loans and other debts to pay off. At this stage, it makes sense to protect what you have. Life insurance is a traditional way of ensuring that the surviving spouse is taken care of in the event of a tragedy.
The primary purpose for life insurance is to provide a spouse, children or other beneficiary with resources in the event of the premature death of the other spouse. There are two basic types of life insurance:
- Term insurance provides a simple death benefit for a fixed period of time. There are several different types of term insurance – renewable, convertible, level, decreasing and increasing term coverage. The premium may stay the same for many years. However, when the stated term expires, the premium can go up; and
- Cash value insurance, as the name implies, provides permanent protection as long as you pay the premium. The premium does not increase over time. The younger a person is when buying the policy, the lower the premium will be for the life of the policy. But because premiums remain level, cash value coverage tends to be more expensive than term insurance. There are different types of cash value or permanent insurance as well – whole life, universal life, variable life and variable universal life insurance.
Most people who work full-time get health insurance through their employer. Along with bringing two lives together, if both spouses work, the marriage also brings two health insurance plans. These health plans frequently include dependents.
Medical inflation is rising dramatically today and employers are increasing the amount they expect workers to pay as they cope with health care costs. In certain cases, they may not cover a family member who has another health care plan. If you have a choice, families with two working spouses should compare coverage, co-pays and costs and choose the best mix that offers the best coverage for the least amount of money.
Should a sickness or illness prevent one spouse from earning an income in his or her occupation, couples can face severe economic impact. Many employers offer an option of disability coverage. Typically, disability insurance is designed to replace anywhere from 45-60% of gross income. If the employee pays for disability coverage, insurance proceeds are tax-free. However, if the company pays for the coverage, this is viewed as a benefit and it is taxable.
Each year, the U.S. elderly population continues to grow. Due to advances in modern medicine and life-style changes, the number of people over the age of 65 is projected to double by the year 2050. Unfortunately, as people age, they are more likely to suffer from chronic illnesses such as strokes or Alzheimer’s or the aftermath of strokes. Statistically, Americans over the age of 65 face a 40% risk of entering a nursing home for long-term care services. Long-term care safeguards couples from losing their most important asset -- the home -- if either one gets sick and must be cared for. Middle age is the best time to consider whether to buy this insurance. Premiums will increase as individuals reach their ‘60s and ‘70s. This coverage must be purchased before the age of 80. A healthy 65 year-old person can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing home and home care.
At this stage, financial goals may include both saving for retirement and saving for a specific purpose. Some investments can be long-term. Others perhaps need to be more liquid. For example, newly married couples may want to save aggressively for a home. If both work, one strategy might be to live off of one salary and save the other.
Joint income could put a household into a higher tax bracket, which places greater emphasis on means of deferring taxes on this income. There are a number of Individual Retirement Account (IRA) options. In 2003, both spouses can each put $3,000 into an IRA. Depending on a household’s adjusted gross income, these contributions may be tax deductible. IRA earnings grow tax-deferred until proceeds are drawn out later in life. The level of contributions will increase by $1,000 each in 2005 and 2008. However, with the exception of an IRA to fund a child’s college education, there is a hefty penalty for IRA withdrawals before age 59 ½.