When I Get Married Should I Take Out Life Insurance?

While we were at school, or studying, or taking an after school gap year, life was quite a simple affair. Because we were not economically participative, we didn’t have to concern ourselves much with all those things that economically participative people (like our parents) had to worry about: things like interest rates, debt repayments, tax forms, assets, liabilities, budgets and insurance.

But, alas, the simplicity does not last for ever. From the time that you receive your first pay cheque, things change. Initially, you are faced with only the most basic of responsibilities: tax returns, rent, telephone and utilities. As time goes by, and your income grows, it extends to encompass bigger things like a car and a piece of property.

In due course, most of us are fortunate enough to meet Mr. or Ms. Right somewhere along the way. And, when I-Do Day is out of the way, you will almost certainly start contemplating the reality that your responsibilities have been redefined: It is no longer about me and mine, but about us and ours. It is this caring us-factor that will direct your thoughts towards the future, and that will inevitably leave you wondering: What happens to him or her if I passed away? How will he or she cope? Do I need to take out additional life insurance to make sure he or she does?

We take a quick look at how you can answer these questions in the context of your personal circumstances.

What happens if I pass away?

Your surviving spouse, in addition to having to cope with your death, will need to manage on a reduced household income, and shoulder the burden of all the costs involved with the funeral and the winding up of your estate. The latter can sometimes take as long as a year. Unless you have some sort of life cover in place to help him or her cork up this hole, your spouse is highly likely to end up facing financial hardship.

The converse also holds true. If your spouse had to die, you could be left in a similar financial situation.

Do I need to take out additional life insurance?

There are no clear cut answers. The amount of additional cover you will need, if at all, will depend on your personal circumstances. A good rule of thumb is that the life insurance you have in place should at least cover the costs associated with your death and replace the net income your spouse will lose in the longer term.

The best starting point is perhaps for both of you to revisit your financial planning and to calculate whether you need to increase or decrease your cover. Go through the calculations twice: once for you and once for your spouse. When you do, follow at least the following steps:

  1. How much will I be contributing towards our expenses on a monthly basis?
  2. How much debt do I have that is not already covered by a credit life insurance policy?
  3. What will the approximate costs be for winding up my estate?
  4. How much will I need to provide for my funeral?

Multiply the amount you recorded under point 1 by at least 72 (6 years). Add this answer to the amounts you recorded from points 2 to point 4. This is the minimum cover you will need.

Deduct this minimum cover from the life cover you already have in place. Remember only to use policies that have not been ceded and only to use the portion of the cover that your spouse is already the beneficiary of.

If the answer you arrive at has a minus value, you will need to purchase additional cover for that amount.

To conclude

Insurance premiums are becoming cheaper all the time. Regardless of whether there is a cover deficit or not, you may want to use the opportunity to compare the price you are paying for the cover you already have in place against the latest rates in the market. Who knows, perhaps you can save enough on your existing premiums to cover the cost of the additional life insurance you may need to buy.