I can remember learning the fine art of selling the spouse add on, or spousal rider nearly 30 years ago. The primary reason that most wives were added as riders back then is that the premium on their insurance was so low that it cost the company more to write a separate policy than they would ever make back. And in fairness to the companies, that was a reasonable way to offer the coverage.
Over the last 10 years the number of companies offering a spousal rider on personally owned, as opposed to group, coverage has dwindled dramatically. The move has now been toward writing individual policies on each spouse. While I am still asked occasionally, the truth is that the spouse term rider has outlived its time.
If you give some thought to the structure of those old policies and then try to make it make sense today, it has actually become something that I wouldn’t necessarily suggest even if it was still available.
Think about it. On a policy that has a spousal rider, the primary insured is the owner of the policy and is therefore the only one who can make changes. At the time the policy was taken out, there was definitely an insurable interest for both the husband and the wife and they had each other as beneficiaries.
Enter a divorce. I know they are rare these days, but let’s pretend. So now you have an ex-husband who owns an insurance policy on himself and his ex-wife. He can change the beneficiary on his insurance to whomever he wants. On the other hand, the ex-wife can’t cancel the insurance, can’t remove herself from the policy, and can’t change the beneficiary from her ex-husband.
The insurable interest is gone, but the contract cannot be changed unless the policy owner wants it changed. Now, if it’s a friendly parting of the ways, this is probably no big deal and they will work it out. But, I’ve been told that not all divorces are friendly. So as the spouse term rider on the policy, the ex-wife, how would you feel about someone that didn’t like you owning a life insurance policy on your life? I’m not suggesting that there are a lot of guys out there having ex-wives bumped off, but I am suggesting that allowing a policy to stay in force when the insurable interest is gone isn’t a good thing.
So, the logic of married couples owning individual policies……well, let’s just leave it at a more practicial and flexible way to insure two lives in this day.
Bottom line. By writing individual life insurance policies, it leaves the insured owner of each policy able to make changes as needed. It also provides the couple with a chance to get better rates, because the truth is that very often the best rate for one may not be with the same company as the best rate for the other.