New Love, New Beneficiary?
Second marriages are increasingly common, and they are spurring important financial questions.
A rising number of wedded Americans are finding that the second time’s the charm: In 2013, there were nearly 42 million remarried adults living in the United States, versus 22 million in 1980.1 In 40 percent of today’s weddings, one or both partners have been down the aisle before. This demographic shift often causes different financial considerations for the household. “For many women and men, the second marriage is much more financially advantageous than the first one, even if they’ve gone through a divorce,” says Stephanie Coontz, director of research and public education for the Council on Contemporary Families and a professor at Evergreen State College. “But the greater earnings power and work experience of each partner requires more negotiation about coordinating career decisions, finances and retirement than in a first marriage.” As couples enter into subsequent marriages, it’s wise for them to have a wide-ranging discussion of their financial obligations and goals. Life insurance is an important part of that conversation. Joelle Palmisano, sales manager at Amica Life, advises couples entering a second marriage to ask the following questions as they merge households to understand their coverage needs:
- What happens if you or I were to pass away?
- Can one of us afford to stay in our home with our children and pay the monthly bills comfortably?
- What future plans would be impacted without each other’s income?
Assessing Your Current Life Insurance Situation
It’s not uncommon for one spouse to be contractually obligated, under the terms of a divorce, to keep the ex-spouse as the beneficiary of an existing life insurance policy. It is also possible that one spouse might want his or her children to be the sole beneficiaries of that existing policy. If your life insurance situation is not as simple as naming your new spouse as the beneficiary on your existing coverage, you might need to purchase an additional policy, as existing coverage may not meet the financial obligations of the current marriage. In these cases, “they would need to pull that policy out of the coverage they have available to take care of their new family and start from scratch in terms of life insurance,” says Frank Muscat, assistant vice president at Amica Life. In addition to identifying financial obligations to address coverage needs, “we recommend replacing income for a specific number of years or at least until the kids are out of school or the mortgage is paid off,” Palmisano says. “Sometimes it’s necessary to purchase a second policy to make sure that income is available in case something were to happen unexpectedly.”
Hypothetically Speaking: Joe and Sarah
Let’s look at Joe and Sarah to see how different coverage scenarios might play out. Joe and Sarah just got married. It’s the second marriage for both. They each have two children from their previous relationships and have purchased a house together. Sarah has an existing life insurance policy, and after a discussion with Joe and a life insurance professional, she identifies that she has enough coverage to help keep her family in their new home, cover final expenses and help with future financial obligations.
“It’s a [good] time to take a look at your situation. It’s different from the last time you bought life insurance – that’s for certain.” – Frank Muscat, assistant vice president at Amica Life
Sarah doesn’t need additional life insurance, but she updates her policy beneficiaries to allocate half to Joe and the other half to her children. Joe, however, is legally obligated to allocate half of his current life insurance to his ex-wife. After talking with Sarah and a life insurance professional, Joe determines that the half of his life insurance that would not go to his ex-spouse falls short of meeting his family’s current and future financial needs. Joe decides to buy a new life insurance policy to help ensure all of his financial obligations to his new family can be taken care of if he passes away.
Calculation and Re-Evaluation
Running the numbers through Amica Life’s needs calculator provides a fast and easy way to determine how much life insurance your new family needs. “If there’s a gap, it will tell you. And if you don’t need [additional] insurance, it will tell you that, too,” Muscat says. “When you get married, you are in a new financial situation,” Muscat says. “If nothing else, it’s a [good] time to take a look at your situation. It’s different from the last time you bought life insurance – that’s for certain.”
- Four in Ten Couples Are Saying ‘I Do,’ Again, Pew Research Center, 2014.
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ALIC34718 (exp. 12/19)