Family Life Insurance: Understanding Your Options
When securing your family’s financial future, there’s no one-size-fits-all approach to life insurance. The right policy for you might differ significantly from what’s best for your spouse, child, parent, or grandparent. Looking at different options helps you develop the best family life insurance plan.
Family life insurance broadly covers different family members. The right policy can cover expenses like funeral costs, college debt, lost income, or childcare. Life insurance is important for anyone whose death would cause a financial strain on survivors.
Determine who needs life insurance by assessing family roles and long-term financial responsibilities. Breadwinners might need a policy to replace their income, while grandparents might benefit from smaller policies to assist with final expenses. Stay-at-home parents should also consider coverage based on the value they provide to the home.
Key Coverage Options
Life Insurance for Couples
The best strategy for couples is often to purchase separate life insurance policies for each spouse. Two main types of coverage exist: term and permanent life insurance.
Term life insurance typically works well for most families. You can arrange the policy to last until your children are grown, when your mortgage is paid off, or when your family no longer relies on your income. Permanent life insurance, like whole life, offers lifelong coverage and accumulates cash value, but it tends to be more expensive than term life.
Joint Life Insurance Policies for Couples
In some situations, a joint life insurance policy, often called a second-to-die or survivorship policy, is suitable. These policies cover both you and your spouse. They are types of permanent life insurance that pay out after both policyholders pass away.
The purpose of this policy is to help with major costs, such as estate taxes or lifetime care for a child with a disability, after both parties die. If one spouse dies, the survivor doesn’t receive a death benefit and is responsible for all premium payments going forward. These policies are suitable only for couples who are financially independent.
Premiums depend on the ages and health histories of both you and your spouse. Severe medical conditions of one spouse can increase the policy’s cost. If both of you are healthy, sharing a policy might be advantageous. Insurers don’t pay survivorship benefits until both pass, meaning they collect premiums for many years, which translates to lower risk for the insurer and lower rates for you.
Life Insurance for Children
Children don’t typically require life insurance. It’s usually better to create a savings account for unexpected costs or future planning. However, policies for children do exist, usually whole life policies, with coverage for the child’s lifetime. These include a cash value component that grows over time.
Some insurers allow you to pay off the policy in 10 or 20 years, keeping the death benefit for the child’s life. You might be able to add more coverage in the future, irrespective of the child’s later health. Policy coverage increases are usually limited to certain ages, yearly intervals, or significant life events like marriage or parenthood.
Life Insurance Plans for Parents or Grandparents
You might not need coverage for older family members, especially those who are not financially dependent. However, policies are available if you want to provide an inheritance or cover specific expenses like funeral costs or estate settlements.
Older family members may struggle to qualify due to age or health. As a result, coverage can be costly. Options for older applicants include burial insurance, guaranteed issue life insurance, and guaranteed universal life insurance.
Burial insurance are small whole life policies to cover final expenses such as funeral costs.
Guaranteed issue life insurance provides coverage regardless of age or health, often for people between 50 and 85. It can be expensive for the low coverage it offers.
Guaranteed universal life insurance combines term and permanent life insurance, offering lifelong coverage but with minimal cash value.
Family Life Insurance Solutions Through Work
If your job offers coverage, you may be able to add supplemental life insurance for your spouse or children. However, examine your current plan first because your basic policy might already offer coverage for your family. Group life insurance from work has pros and cons.
Rates are rarely fixed, which means premiums increase as you get older. There are limits on how much cover you can get, and costs differ among employers. You may be able to get more coverage for less cost on the open market. If your spouse is healthy, individual coverage is usually less costly. Rules may restrict your choices.
Supplemental coverage through work might not always be guaranteed, meaning you may need to show you’re in good health for extra coverage. When purchasing coverage through work, find out if you can keep the policy if you leave your job.
Life Insurance Riders for Your Family
If you need extra coverage for your family, think about adding riders to your term or permanent life insurance policy. Riders expand coverage by covering a specific person or need. You can purchase riders on the open market or through your employer.
Three key family life insurance riders:
Spouse term riders have a set term, which typically expires when the base term policy expires or when the spouse reaches a certain age.
Child riders cover a set time and pay out if the child dies during that period, usually for children between 15 days old and 25 years old.
“Other insured” riders can cover anyone you have an insurable interest in. This could be a parent, grandparent, spouse, or child.
Life insurance riders aren’t always worth it. You could be better off buying a separate policy for a family member instead of adding a rider, depending on the coverage you need. Riders are typically canceled if the policyholder dies, leaving the family member with no insurance. Coverage may also be limited and cost more if your spouse is in great health.
