My wife has no earned income. Why would I buy life insurance on her life? At first glance this may seem a reasonable question but upon closer inspection, the question is really quite absurd. I guess, as with many things, it depends on what is important to you.
My wife is a lot smarter than me (pause for jokes) and much more educated, but her choice is to be a stay-at-home Mom. She has zero earned income and we are always taught that you insure against the loss of economic value, right? For a wage earner, this is easy to understand. But for a non-earner?
Do you insure your house or car? Of course you do. Not because it is spitting off income but because it has economic value. Rather than having a domestic violence record, I consider my wife to have value. Do you insure against lawsuits and liabilities? Yep. Because from a negative cash flow perspective, they can cost a lot of money. In other words, keeping money from going out the door can be as important as keeping money coming in the door.
Let’s consider my wife. What would it cost me if she suddenly wasn’t in the picture? Okay, let’s get more jokes out of the way about less going out the door because she wouldn’t be spending it. I’ve heard that before as a serious response. We increased the coverage on each of us considerably when we had a growing family. On her, we increased it to $3,000,000. On a non-working wife? Yep. Here’s why. We have three kids and, if I have a choice, I simply can’t imagine bundling them up early in the morning and bringing them to day care or school and gathering them up ten hours later twelve months a year. I would likely significantly scale back my hours, take summers off, hire a nanny, buy a bigger house with live in nanny quarters (pause for more jokes), etc. The bottom line is that the money would be spoken for given my increased expenses and lower income. I am protecting both money coming in the door and protecting against money going out the door. Frankly, insurance on my wife is protecting my income, though we usually don’t see it that way.
When we most recently purchased policies, the cost was a whopping $500/year per million of coverage for 20 year term; a pretty insignificant amount to pay. A handful of years earlier we bought 30 year term for only slightly more. If I did lose her in an accident or from a sickness, I imagine the regret of not having that coverage in force would compound my sadness a bit. Most people don’t understand just how cheap term insurance is. I regularly show advisors numbers on themselves to prove a point. These are people in their thirties to sixties and they are invariably surprised at how little it costs; often even less than what they are paying for coverage through their professional associations and the rates can be guaranteed level much longer. Term insurance can be less than $400 per million even at 40; which isn’t old but not real young either. It’s so cheap it’s just silly. It’s so cheap it is difficult to get agents to sell it because they simply can’t make money doing so.
There is an ancillary reason for the coverage as well as a rationalization to the carrier for financial underwriting. For some of the coverage, we bought the same term insurance from the same carrier on me as on her. This coverage is convertible to survivor/second-to-die coverage for the entire 20 or 30 year duration of the policies. We have into our sixties to make long term estate planning and charitable planning decisions; which is sure nice in this environment of financial and political uncertainty. And we also chose a carrier which would allow us to convert to twice the face amount so every $1,000,000 on each of us is convertible to $2,000,000 of survivor coverage at the best preferred rates for which we qualified. I hope we’re still preferred later in life but I’m not going to count on it and now I don’t have to worry about it relative to insurability.
Think about this estate planning application for your clients who don’t want to pull the trigger in this uncertain environment but don’t want to be twisting in the wind in the meantime either.
Bottom line; huge potential benefits and flexibility for pennies.
