You and your family members are covered by family life insurance. Find out how to select the right coverage for your family.
There is no one-size fits all solution when it comes to buying life insurance for your family. The policy that works best for you might not work for your spouse, children, parents, or grandparent.
Understanding all your options will help you to create the best family insurance plan for your loved one.
What is family life insurance?
Family life insurance covers policies that cover multiple members of your family. These policies can be used to cover a variety of expenses such as funeral expenses and college debts.
Life insurance is important for everyone who would be financially burdened by the death of a loved one.
You can determine who needs life insurance by looking at the roles your family members play and their long-term financial responsibilities.
- Breadwinner: If a primary earner is unable to work, life insurance can help replace the income.
- Non-earning spouse: Life Insurance can pay for the services that a spouse provides free of charge, such as child care and cleaning. These services can be costly to replace. According to Care.com’s 2020 Cost of Care Survey, more than half of American families spend at least $10,000 per year on child care.
- Children: Because no one is dependent on them financially, children don’t usually need life insurance. These policies have their benefits. You can lock in low rates for child life insurance and use it as an investment vehicle to your children.
- Grandparent or parent: Life insurance is not necessary for older family members if they do not depend on your income. However, a policy can pay funeral expenses and debts, as well as mortgage payments for a home that you wish to keep.
Think about your long-term goals to help you create the best family insurance plan. For example, if you need life insurance as a new parent, perhaps your most important goal is to protect your income. If so, consider increasing your own coverage instead of buying life insurance for your child.
For couples, there are options for individual life insurance
For most couples, buying separate life insurance policies is the best choice. You have two options for coverage: permanent or term life insurance.
Term life insurance is typically sufficient for most families. A term policy can be set to cover you up until your children are grown, your mortgage is paid off, or your family is no longer dependent on your income.
Permanent life insurance policies, such as whole life, offer lifelong coverage and build cash value. These policies tend to be more expensive than term insurance.
For couples, there are options for joint life insurance
It may be a good idea to purchase a joint insurance policy that covers you and your spouse. This is often known as second-to-die, or survivorship life insurance. In general, joint life insurance policies for married couples are a type of permanent life insurance that pay out after both policyholders die.
The main purpose of survivorship life insurance is to help cover major costs, such as estate taxes or lifetime care for a child with a disability, after both parties die. The surviving spouse is responsible for paying 100% of all premiums. If one spouse dies, they don’t get a death benefit. These policies are only suitable for married couples who can afford to live on their own and are able to cover the cost of living without receiving a payout.
Joint policies, like marriage, are a long-term commitment. It can be difficult to split a policy after a divorce. You must also be sure you can provide for your family in the event of death.
Cost is another important factor. Premiums are based on your age and the medical history of your spouse. A spouse with a severe medical condition can increase the cost of the policy. You might consider buying two policies, and customizing them to your needs.
If you are both healthy, it might be a good idea to share a policy. Insurance companies don’t have the obligation to pay survivorship benefits until either party dies. This means that they can collect premiums for longer periods. This means that the insurer is less likely to incur losses and you will pay lower rates.
What is the first-to-die insurance policy?
First-to-die insurance is a rare form of joint life insurance which pays out after the policyholder dies. These policies are rarely offered by insurers, if any, because most people won’t purchase them. Here’s why: First to die life insurance is slightly less expensive than purchasing two separate policies. It pays out even if the spouse who died first is no longer covered. It is more practical to pay each person individually and receive a payout, regardless of who dies first.
Children’s life insurance policies
Life insurance is not necessary for children. You can open a savings account if you need to save money for the future or cover unexpected expenses.
If you need coverage, however, there are policies that can be tailored to your child’s needs. In general, these policies are a form of whole life insurance, which means coverage is valid for the child’s life, as long as the premiums are paid. Most policies include a cash value component. You can borrow against the policy or withdraw your money if it is cancelled. However, building cash value is a perk and shouldn’t be the only reason you buy a policy.
Child life insurance rates are usually fixed and do not increase over time. Some insurance companies allow you to cancel the policy after 10-20 years. The death benefit is not affected for the child’s life.
You may be able to lock in the possibility of adding more coverage later on, regardless of how the child’s health develops. You cannot increase coverage at certain ages, yearly intervals, or approved events such as the marriage or birth of a child.
Parents and grandparents can get life insurance
If you don’t depend on your older family members financially, it may not be necessary to purchase coverage. Policies are available for those who wish to leave an inheritance or pay specific costs, such as funeral expenses and estate fees.
Due to their health or age, elderly family members might not be eligible for life insurance. This can lead to high premiums.
There are four main types of life insurance for seniors:
- Term life insurance covers the policyholder only for a certain number of years before expiring. If the term ends, there is no payout.
- Whole life insurance builds cash value and is a type permanent insurance. It will pay a payout if the policyholder dies. This insurance is more expensive than term coverage.
- Guaranteed universal insurance is a combination term- and permanent insurance. These policies provide lifelong coverage, but have a low cash value. These policies are often less expensive than whole-life policies but you could lose your coverage if you fail to make a payment.
- Guaranteed issue insurance is a type permanent insurance that covers you regardless of your health or age. To apply, applicants must generally be aged between 40-85. While the guarantee might sound appealing, guaranteed issue life insurance can be expensive for the low coverage it offers.
Workplace life insurance options for family members
If you get coverage through work, you may be able to add supplemental life insurance for a spouse or child. You should review your existing plan before you purchase additional coverage. Your basic policy may already include your spouse or children.
There are pros and cons to getting group life insurance through work. Rates are not locked in so your premiums may rise as you get older. There are limitations on how much coverage you can purchase for yourself, your spouse or a child, as well as costs that vary between employers. Compare: There may be more coverage available on the open market than you think.
You may be restricted by certain rules. You may have to buy supplemental coverage to protect yourself, before you can purchase additional life insurance for your spouse and children. Supplemental coverage through work is not always guaranteed, which means you may need to complete a life insurance medical exam or prove you’re not a risk to insure before qualifying for additional coverage.
Check if you are allowed to take your policy along when you purchase additional coverage through work. Your employment is usually tied to group life insurance. You could lose coverage if your job is lost.
Life insurance for your family
Consider adding riders to your permanent or base term life insurance policy to get the best of both worlds.
Life insurance riders increase the coverage of your policy by covering a particular person or need. Riders can be purchased on the open market, or through your employer, if you have the company’s permission. To add riders to your policy, you might need to either add them when you buy it or undergo a medical exam. There are many options available, and not all insurers offer the same riders.
These are the three most common types of family insurance riders:
- Spouse term riders can be attached to a base term policy for a limited time, but they are only valid for a certain number of years. Your spouse rider may be converted to whole life insurance later.
- Child riders pay out if the child is killed during a specified time period. These riders usually cover children between 15 and 25 years of age. The rider may be converted to an individual policy of life insurance at that time. There are different age restrictions that parents need to be aware of. To add a child rider, you might need to be at least 18 years old and 55 years old.
- “Other insured” riders can typically cover anyone in which you have an interest. This means that you would not be financially affected if they died. This could theoretically include a grandparent or parent. But, coverage and premiums are often based on applicants’ age, gender, and health. This might limit access for older family members.
Life insurance riders are not always worth it. You might consider buying a separate policy for your family members to provide the same coverage as the rider. Riders are usually canceled when the policyholder dies leaving the family member without insurance.