Financial Literacy - Families and Finance
Life insurance needs vary with lifestyle

"There are two distinct pools of money needed," says Sherman. "There are cash needs which would provide for paying off all the debt, things you want to take care of at death, paying off your house, funding college education, doing things that you wanted to do but haven't done," says Sherman.

"The second part is my family's need for a portion of my economic capacity to survive, so I would create another pool of money to create income for them for however long is needed," he says.

Also, couples should consider the replacement value of a homemaker. Many times replacing an income is the only consideration in buying life insurance, but there is obviously an unwritten economic value to the homemaker role.

"Not to be sexist, but say the working spouse is the husband. Sometimes people don't consider, 'Well what if my wife dies? I still have to go to work, but who's going to take care of the kids?'" says Fox.

"It's not a paycheck, but there are house-cleaning costs, child-care costs, things that are not evaluated sometimes in terms of an economic benefit," he says.

Married, no kids

A married couple without children is in a similar boat as their procreating counterparts. Even with no extra mouths to feed, spouses would probably want to provide for the surviving partner in the event of their death.

In today's world, most couples enjoy a lifestyle that requires the income of both partners and term life insurance can help keep the surviving spouse in the lifestyle to which he or she has become accustomed. It can also pay for debt incurred together, such as a mortgage, home equity loan or credit card bills.

Term is a good bet for a couple of reasons. For one, it's guaranteed for a set amount of time. A couple could have term insurance for the duration of their working lives.

By retirement, ideally the mortgage would be paid off, debt obligations should be less if not nonexistent and retirement savings, coupled with Social Security benefits, could be enough to sustain one partner should the other die first.

Buying term insurance while you're healthy and relatively young can be an inexpensive solution to life insurance problems.

"Term insurance is dirt cheap because typically the insurance companies don't have to pay out. I think the statistics are that about 2 percent of term insurance policies actually pay and that is why they're able to offer it so inexpensively. They really protect against the totally unexpected, not a life-expectancy-type death," says Kay Lynn Mayhue, a Certified Financial Planner with The Botsford Group in Atlanta.

Domestic partners

Gay and lesbian couples have issues similar to their heterosexual counterparts but with a few complex twists, primarily because in most states they're not legally able to enjoy the protections afforded to married couples.

The aims are the same: providing a safety net and income for a loved one and, increasingly, children.

But there are some other considerations, starting with the application from the insurance company.

"Married, heterosexual couples are assumed to have an insurable interest and that is the notion that you have a stake in the ongoing life of somebody. You can't just go out and get life insurance on anybody willy-nilly," says Joe Kapp, a financial planner with Lincoln Financial Advisors.

"For gay and lesbian couples who are not able to marry, that inherent insurable interest does not exist," he says.

So they need to prove it through either a letter from the insurance agent or proof of financial ties.

Structuring the ownership of the insurance policy is another consideration. Married couples can leave an unlimited amount of money and assets to their surviving spouse when they die without triggering estate taxes.


Domestic partners, on the other hand, are constrained by these laws.

"The estate tax comes into play for gay couples whereas for married couples it does not. As a result, depending on how the insurance is owned, it can actually influence the estate of the person who passes away," Kapp says.

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