Tailoring Life Insurance to Your Family’s Needs
When securing life insurance, a one-size-fits-all solution rarely exists. The ideal policy for your spouse, child, parent, or grandparent will differ based on their unique circumstances and financial dependencies. Understanding the range of options available is the first step in crafting the most effective family life insurance plan.
What is Family Life Insurance?
Family life insurance broadly encompasses policies designed to cover various members of your family. These policies can be used to address a variety of expenses, including funeral and burial costs, college debts, lost income, or childcare. Essentially, life insurance is a crucial consideration for anyone whose passing would create a financial strain on others.
You can assess who needs life insurance by evaluating each family member’s roles and their long-term financial responsibilities. For example, primary income providers may need a policy to replace their income in the event of their death, while grandparents might require smaller policies to help with funeral expenses. Stay-at-home parents also contribute significant value to the household, and life insurance should reflect this.
Best Life Insurance for Couples
For most couples, the best approach is to purchase separate life insurance policies for each spouse. There are two primary types of coverage available: term and permanent life insurance.
Term life insurance is often sufficient for many families. A term policy is typically set for a specific period, such as until your children are grown, your mortgage is paid off, or your family is no longer reliant on your income. Permanent life insurance policies, such as whole life, provide coverage for your entire life and accrue cash value. However, these policies are generally more expensive than term life insurance.
Joint Life Insurance Policies for Couples
In some situations, a joint life insurance policy—often called second-to-die or survivorship life insurance—can make sense. These policies cover both spouses and typically pay out after both policyholders have died. This type of insurance is a form of permanent life insurance.
The principal aim of these joint policies is to help cover major costs, such as estate taxes or ongoing care for a child with a disability, that may arise after the death of both partners. If only one spouse passes away, the surviving spouse doesn’t receive a payout and is responsible for 100% of the premiums going forward. Therefore, these policies are usually suitable only for couples who have independent financial resources and can cover living costs without the immediate benefit of a payout.
Premiums depend on the ages and medical histories of both spouses. Significant health conditions of one spouse can elevate the cost of the entire policy. Conversely, if both are healthy, sharing a policy might be financially beneficial. Insurers delay payouts until both parties die, which means an extended period of premium collection, lowering their risk and, potentially, your rates.
Best Life Insurance Policies for Children
Children typically don’t require life insurance. Financial protection for unexpected costs or savings for a child’s future are often better addressed through savings accounts.
However, life insurance policies for children are available if preferred. These policies are typically a form of whole life insurance, and coverage lasts for the child’s lifetime. They often include a cash value component that grows slowly over time. Some insurance providers permit policy payoff after 10 or 20 years, maintaining the death benefit for the child’s lifetime. These policies may also include options to add extra coverage in the future, regardless of the child’s health at that time, with coverage increases usually limited to predetermined times or events, such as marriage or parenthood.
Best Life Insurance Plans for Parents or Grandparents
Life insurance coverage for older family members may not be necessary, especially if they aren’t financially dependent on others. However, policies exist for those who wish to provide an inheritance or cover specific costs like funeral expenses or estate fees. Older family members might encounter difficulties in qualifying for life insurance due to their age or health, which can make coverage expensive. Despite this, there are options available.
Possible options include:
- Burial insurance: Primarily small whole life policies to cover final expenses such as funeral costs.
- Guaranteed issue life insurance: A type of permanent life insurance that guarantees coverage regardless of age or health, generally for applicants aged 50 to 85. The guarantee is attractive, but coverage may be expensive relative to the low coverage offered.
- Guaranteed universal life insurance: This type of coverage combines term and permanent life insurance features. Guaranteed universal life insurance offers lifelong coverage but builds minimal cash value, often making it a more affordable option compared to whole life policies.
Family Life Insurance Solutions Through Work
Supplemental life insurance for a spouse or child may be available if you have coverage through your employer. Review your current plan before purchasing more coverage, as your base policy might already cover your spouse or child.
Group life insurance purchased through employment has pros and cons. Rates for supplemental coverage rarely remain fixed, leading to increasing premiums as you age. There are also limits on how much coverage you can secure for yourself, your child, or your spouse, and costs often vary between employers. It can be beneficial to shop around, since you may find more coverage for a lower cost in the open market. If your spouse is healthy, individual coverage may be a less expensive alternative.
Certain requirements may also restrict your options, for instance, additional life insurance for your spouse or child may demand that you first purchase additional supplemental coverage for yourself. Additional coverage through work is not always guaranteed; you may need to provide evidence of good health to qualify. Always check if you can keep the policy if you leave your job, as group life insurance typically ends with your employment.
Life Insurance Riders for Your Family
If you want the convenience of a single policy but need extra coverage for your spouse or child, consider adding riders to your term or permanent life insurance policy. Life insurance riders broaden the coverage of your policy by including a specific person or resolving a distinct need. You can obtain riders on the open market or through your employer, if allowed. Not all insurers offer the same riders, and availability can vary by state.
Three typical types of family life insurance riders include:
- Spouse term riders are usually effective for a set number of years and typically expire when the base term policy to which they are attached ends or when the spouse reaches a certain age. It may be possible to convert your spouse rider to an individual policy before it expires.
- Child riders cover a fixed period and pay out if the child dies during that time, usually for children aged from 15 days old to 25 years old. The child may be able to convert the rider to an individual life insurance policy once they reach that age.
- “Other insured” riders can usually cover anyone in whom you have an insurable interest, which means you would suffer financially if the person died. This could include a parent, grandparent, spouse, or child.
It’s worth carefully evaluating whether life insurance riders are the best choice. Depending on the coverage amount needed, purchasing a separate policy might be more cost-effective than adding a rider, especially since riders are often canceled when the policyholder dies, leaving the family member without coverage. Also, coverage may be limited and potentially more expensive if your spouse is in good health.
