Insurance for newlyweds

Joint policies seem attractive to young couples because of the cost savings. But it doesn’t cost much more to insure each life individually and clients receive double the payout.

For two 30-year-old clients, a joint first-to-die $1-million T10 policy would insure both spouses and cost $787 annually. The contract would pay out upon the first insured’s death to the surviving spouse. However, the couple could purchase two $1-million T10 contracts for an annual premium of $849. And the total payout from both contracts would be $2 million.

Read: Don’t delay planning

Complications with joint policies can arise if a marriage falls apart.

A divorce does not invalidate a contract, so if the couple forgets to cancel it, your client’s ex-partner could receive an unintended death benefit. Also after divorce, each spouse may have to purchase insurance individually (depending on the type of original policy), and if either spouse’s health has worsened, he or she may have a difficult time getting new coverage.

Is your son getting married?

Already insured

Your newlywed client’s parents may already have bought her life insurance. In such situations, parents usually pay the premiums and are the beneficiaries. The parents own the contract and the child is usually appointed as contingent owner. If the parent dies, the ownership automatically reverts to the insured child.

Read: Donate life insurance, save tax

Explain policies to clients

Joint policies insure two lives on one contract and are underwritten by combining the health and ages of each life. The premium is determined by the average longevity of the two spouses.

A joint life first-to-die contract pays out when the first insured dies, while a joint life last-to-die policy pays out after the second death. A joint last-to-die policy is better for people who want to leave money for heirs or to cover taxes after death.

When the insured child marries, the family needs to discuss when the child should take over the premiums based on financial ability, and whether the beneficiary should be changed to the new spouse. Subsection 148 (8) of the Tax Act allows a tax-free rollover from a parent to a child insured under a life insurance policy. The uninsured spouse should also purchase a policy, even if he stays at home to care for children, since his wife would have to pay for childcare if he dies unexpectedly. If the couple can’t afford permanent insurance for the uninsured spouse, he can purchase term and convert it when their finances are healthier. Make sure the policy you recommend has this feature.

Health insurance

If both spouses work, advisors can help the couple decide whether to opt out of one of the spouse’s plans. For instance, if one spouse has a 50% co-pay in his health plan and the other is fully covered, the couple could opt out of the first plan.

Read: Don’t take good health for granted

But it could also be advantageous to keep both plans in place. That way, one spouse may first claim under his own plan and then under the spouse’s plan to get more or all of the health expenses covered.

Make sure new couples talk finance

A 2013 BMO survey shows most married Canadians wish they’d discussed financial matters before walking down the aisle. While 98% of Canadians agree they should be on the same page as their spouses, when it comes to finances, most of them aren’t.

A whopping 40% of these couples say they have different investing styles from their partners.

It’s not surprising, then, that more than half of Canadian married couples have financial regrets, with 62% saying they wish they had discussed their financial pasts and plans before getting married.

Sarah Brown is a licenced marketing assistant at Al G. Brown & Associates.