Last Updated: 04/04/2018
One of the most common questions we hear is, “Can my non-working spouse qualify for life insurance?”
The answer is yes! Life insurance companies understand that taking care of the home is invaluable and is equally important as earning an income for the household.
In most cases, life insurance companies will actually allow a stay-at-home spouse to purchase the same amount of coverage as their income-earning counterpart. Life insurance companies understand that the family breadwinner relies heavily on their spouse to take care of the children, complete household tasks, and perform other day-to-day activities that would otherwise limit the income earner’s potential to earn a paycheck.
In this article, we’ll explain how life insurance companies determine the amount of income your stay-at-home spouse can qualify for and we’ll provide some insider tips to help you save on the cost of your coverage.
Quick Article Guide:
1. Will My Non-Working Spouse Qualify for Coverage?
2. Should I Buy Life Insurance On My Spouse?
3. How Much Life Insurance Should My Spouse Purchase?
4. What Type of Life Insurance Should I Purchase for My Spouse?
5. Term Life Advice Is Here to Help!
Life insurance companies understand that a death in the family can cause serious financial and emotional hardship. This is why people purchase life insurance—to help mitigate the financial loss to your family, or your ability to earn an income. Without your spouse taking care of the household, your ability to travel for your job, for instance, could end overnight. Depending on your profession, the responsibility of overseeing the household and taking care of your children may force you to have to change careers, or you may be unable to work at all.
After the loss of a stay-at-home spouse, the primary breadwinner of the family is often unable to maintain their income and work responsibilities. When this happens, the surviving spouse must put their ability to earn an income aside (at least temporarily), to make arrangements for caring for their minor children, elderly parents, pets, or other dependents.
The costs of losing a loved one also requires time to grieve. Because of this, there may be significant costs associated with taking time off work to care for children and family members, as well as hiring a nanny, babysitter, or arranging childcare options. These are some of the reasons that a life insurance company will approve an application for a non income-earning spouse. As mentioned earlier, most life insurance companies will allow an applicant to carry as much life insurance as the family breadwinner, up to a maximum of $1 million.
Our agency has experienced a number of circumstances when a wife has passed away, leaving her husband with young children to care for, along with medical bills. Should the unimaginable occur, the surviving parent’s focus should be caring for the children’s well-being, both emotionally and financially. Providing care for the children may require the surviving parent to stop working and stay home for a few years until the children have moved out. Life insurance is designed to provide this flexibility.
Everyone provides a financial value to the household and a loss if they’re gone. Here are some common expenses you may want to consider when determining the amount of life insurance you need for your spouse.
- Cost of childcare (nanny or daycare/preschool)
- Housework expenses (laundry and household cleaning)
- Food preparation (grocery shopping, cooking dinner, lunch, and breakfast daily)
- Transportation (taking children to and from school, activities, etc.)
- Any outstanding debts (credit cards or student loans)
- Travel expenses and lodging (airfare for family members to help)
- Counseling costs
- Unforeseen medical billsBurial costs
When deciding the appropriate amount of coverage to buy, everyone’s situation is different. Most of the clients we work with decide to purchase a policy for about 75% of the coverage the income-earning spouse purchases. When determining the amount of coverage you need, we recommend considering the expenses listed above.
At minimal, you’ll want a policy providing income replacement equaling the years until the youngest child would be “out of the house.” This coverage would be used to pay for childcare expenses, transportation to and from school, and help around the house. For instance, if your youngest is 14 years old and they’ll be off to college in 5 years, you should consider purchasing approximately five times the breadwinner’s current income.
If you have long-term or indefinite care-giving responsibilities, you’ll want to consider both (1) your policy benefit and (2) the number of years you expect you’ll need life insurance. Most importantly, make sure you choose a policy that is affordable. It’s better to have a smaller amount of coverage in place for longer than a lot of coverage for a short period of time. The policies we recommend will allow you to cancel your coverage without penalty so you don’t need to worry about having to continue to make payments on your life insurance policy when you no longer need it.
It’s also important to note that situations change. If you are caring for a parent, you might choose to cancel the policy if that parent passes away before you. You also have the ability to change your beneficiary at any time, and many life insurance policies will allow you to reduce your death benefit if you no longer need the amount of coverage you initially applied for.
As mentioned earlier, life insurance benefits generally can’t exceed that of the working spouse. To determine the amount of coverage available, you should consider employer provided coverage, plus any other life insurance coverage that you have outside of work.
For example, if the working spouse has $200,000 of life insurance through work and $500,000 independently, the non-working spouse could be allowed up to $700,000 in life insurance coverage.
If the working spouse only has one life insurance policy through their work, or a small policy, that amount will generally be the maximum available to the non-working spouse. If the primary breadwinner doesn’t have life insurance, the non-working spouse will often be limited to $25,000-$50,000 in coverage. It should be noted that the limits available in this situation vary by insurance company and your state of residence.
There are exceptions to these guidelines. For instance, if you have a sizable estate which is likely to face estate taxes when you pass away, many insurers will allow the non-working spouse to purchase more than $1,000,000 of coverage. These policies are usually owned by a trust that is set up to help avoid or reduce estate taxes. Another option in this situation is a “second to die” life insurance policy that does not provide a death benefit until both spouses pass away.
Other exceptions we’ve seen occur when a policy was needed to fund a trust for a special needs child, when the income-earning spouse is uninsurable due to health reasons, and also for business owners setting up a buy-sell agreement. We’ll be glad to share our knowledge and experience because we’ve helped thousands of clients with their life insurance needs over the years. If you explain your situation, we’ll help determine your best options for affordable life insurance protection.
INSIDER TIP: Life insurance companies will consider your income when determining the amount of coverage you can qualify for. If you are considering buying life insurance and you are nearing retirement age, you should purchase coverage before you retire. You and your spouse will have more options by buying life insurance prior to your retirement and you will be able to qualify for more coverage if needed.
If you are purchasing life insurance for pension maximization, we recommend starting the process three to six months before your planned retirement date. The approval process for a life insurance policy usually takes six to eight weeks and there is no obligation or fee if you decide not to accept the coverage. Get approved, know your options, and then choose your best plan. If your situation changes or you reconsider, you can cancel the policy without any penalty or obligation. As we mentioned earlier, it’s also easier to qualify for coverage while you’re still working. Life insurers prefer active, productive people.
The most common type of life insurance purchased for a non-working spouse is term life insurance because it provides the largest death benefit for the lowest monthly cost. This is because term life insurance only provides fixed rates and coverage for a set number of years. We generally recommend selecting a term that will provide protection until you reach retirement age, or until your children are out of the house. If your kids are under five years of age, a 20-year term should be sufficient. If they’re older, and you are closer to retirement age, a 10- or 15-year term should suffice.
If your caregiving needs are indefinite, then you’ll want to consider a “Guaranteed Universal Life” (GUL) policy. Due to their longevity, GUL policies are often purchased by parents with children who have special needs. GUL policies can be priced comparably to a term policy and they offer guaranteed rates and coverage to a set age. The advantage of a GUL policy is that they offer coverage until the age of 90 or later rather than for a specific number of years. Some GUL policies will even extend coverage until the age of 95, 100, 105, 110, or 121. With term life insurance, the longest term available is 30 years.
If you’re in your 30’s or 40’s and you have a disabled child that will need care for the remainder of your life, a GUL policy is probably your best option. With a GUL policy, you’ll be able to secure a low rate on a lifetime policy, and in fact, they offer competitive rates until the age of 90 or later. These lifetime policies will provide you with peace of mind and you’ll be able to sleep easy knowing there will be money left behind for your loved ones when you pass away.
When shopping for life insurance, we always recommend working with an independent life insurance agent. Most local agents only represent one life insurance company and you’ll save money by working with an agent that represents at least 10-15 life insurance carriers. This is because each company has its own unique financial underwriting guidelines, as well as medical requirements. The more companies your agent represents, the more options you have to choose from, and the more likely you’ll save money on the cost of your coverage. Term Life Advice proudly represents more than 60 top-rated life insurance companies to ensure our clients always get the best rates.
If you have questions about purchasing life insurance for your spouse, we can help. Our agents don’t have “sales quotas” or any purpose other than to help our clients obtain affordable life insurance from highly-rated life insurance companies. We only work with “A” or better-rated companies and some of the carriers we work with are “hidden gems.” These are financially solid companies that have been selling life insurance for over 100 years, always paying valid claims.
What these companies save in advertising costs is passed to you in lower premiums. Why pay 30-40% more to purchase life insurance from a smaller company, like State Farm, that spends almost a billion dollars a year on over-advertising? Life insurance is regulated on both a state and national level and carriers are periodically reviewed to ensure their financial stability. In other words, one A+ rated life insurance company is just as solid as the next, so why pay more for your company’s expensive commercials?
Our agency is owner-operated, so you’ll always speak with someone who truly cares about helping you find the best rates available for your family’s life insurance needs. We know that a stay-at-home mother or father provides just as much value to the household as the primary income earner.
Give us a call today at 855-902-6494, or request a free quote below to instantly compare rates from dozens of highly-rated life insurance companies.