Why should a married couple who have no kids have a life insurance policy?

I was recently asked a question that bothered me: Why should a married couple who have no children acquire a life insurance policy? The question shook me because I have more than a decade in the financial industry, and more than thirty years of personal experience; so a number of sad stories came to mind. One particular story was stronger than the rest though. 

The couple were acquaintances of mine and they had just gotten married. They were in their twenties and in reasonably good shape. The husband was on a business trip and died due to natural causes. 

Now I am the first to admit that this is an unusual circumstance. When the gentlemen passed, more than a decade ago, most of us would say that he could be expected to see his 80th birthday. Today, a similar Canadian who is male and twenty years of age could be expected to live to his 82nd year. So why would he need a policy? Well because all of us are different and we are not just averages.

Whether, we think we are going to live until 75, 80 or 85; one has to remember that life expectancy is just that: what we expect to live to given certain average conditions. The story I told was of one individual, one circumstance, one life. There are many Canadians who live until their 100th year; while there are a number of Canadians who will die earlier. Some people will die from an accident, riding in a bus or driving a car. Some people will die much before time because of an undiagnosed condition like a blood clot, genetic impairment or some random thing. Hell, right now, we are experiencing a once in a lifetime pandemic. Who would have expected that? The truth is no one actually knows when they or another will no longer be with us. All we do know is the average or statistic of how long one “might”, “'should” or could”  be here. 

So for me, the question is not how likely it is for one to die; the question should be what effect will it have on you if your present spouse passes? When your spouse expires, as an example, can you afford the house that you live in? Most people don’t think about it but when your spouse departs, the surviving partner might not be able to afford the mortgage, the utilities, the maintenance costs and/or the condo fees. The same could be said of other jointly held assets like a car, a cottage or a boat. Those types of cash flow or affordability questions probably make sense for most people. 

However, if you are very young and you might not have any jointly held assets - like a car or a house - or debt - like a credit card, mortgage or line of credit. One might say that the passing of my spouse will have no impact on me.

Here is where my experience raises its ugly head. I know that in death there are a number of costs. In my experience, “final expenses” can be a big deal. If you are not ready to deal with the cost of a funeral, this can set many people back. Depending on what you might desire (and, possibly what your family and the funeral director sell you) a funeral could cost over $10,000. No surviving spouse is ready for such an expense, they might have to redeem an RRSP or go into debt. 

Alternatively, there could be the issue of resolving the transfer of assets. For example, a young couple would likely have separate (registered or unregistered) investment accounts. There are a number of ways of rolling those accounts over without paying taxes immediately. In the case of a couple in their twenties, this might not be ideal because the tax bill might be paid upon the death of the surviving spouse. If the surviving spouse dies in their 70s or 80s, their tax bill could be large. 

So for a young couple who are going through the estate planning process, it makes sense to have life insurance to pay for the transfer of assets and taxes therein, just in case one of them passes early. 

There are many other reasons why one might want to have a couple without kids - young or old - might want to have life insurance: the policy or policies could be used as a tax shelter, as a way to fund a future “critical financial event” (e.g. divorce, retirement, large purchase), provide a safety net for the surviving spouse or allow the surviving spouse to mourn properly.  Each of these are legitimate, if not good, reasons for a married couple without any kids to have a life insurance policy. Experience teaches me that there are also a lot more. However, what I do know is that with over a decade in the industry, I have not seen a bad reason or a drawback to owning a life insurance policy. If you can think about one, please let me know.