This article covers:
• The pros and cons of family life insurance
• Types of family life insurance
• What you should consider when choosing family life insurance
Reasons For Insuring Family
We all know why it’s helpful for the primary breadwinner of a family to have life insurance because in the event of his or her passing, the family will be provided for. But what about spouses who stay at home, children, and parents? Is it still worthwhile for them to have insurance?
While it will vary from family to family, the answer definitely may be yes. In this section, we will discuss why you might want to consider family life insurance.
Insurance for a Spouse
Even if your spouse stays at home or works part-time, having a life insurance policy for him or her might still be helpful financially for several reasons.
The primary one is childcare. If your spouse has been staying at home and taking care of the kids while you work, you will all of the sudden have to pay for childcare in the event of an unexpected passing. This can be a huge financial expense.
Another reason is that you might need to pay for funeral expenses, including that you may need to take some time off from work as you deal with the loss of your spouse, which the money from a life insurance policy would allow you to do.
Insurance for Children
The best reason to insure children is so they have it later in life, especially because you don’t know if they will qualify at that time. In the case of a whole life policy, it can steadily increase in value over time, also giving your children the possible option of cashing out the policy at a future date.
Insurance for Parents
You cannot buy life insurance policies for your parents because you have to prove insurable interest. As an adult child, you can’t really prove this. But you could offer to pay the premiums for your parents’ life insurance policies if they are willing to apply for their own policies and name you as the beneficiary.
Cost of Family Life Insurance
Family life insurance can cost anywhere from $5 a year for a single rider added to your term life insurance policy to hundreds or thousands of dollars a year depending on how many people are on the policy.
As is true for traditional life insurance, it is cheaper to purchase term family life insurance policies compared to whole life insurance policies.
Process to Get Family Life Insurance
The process to get family life insurance policies is pretty much the same as a traditional life insurance policy unless you’re adding a child rider to your policy. Anybody who is getting insured will likely have to go through a medical exam and list various family and genetic information before qualifying for a policy.
Types of Family Life Insurance
Just like “regular” life insurance, you can get term and whole life insurance policies for family life insurance.
As an example, you can get child whole life insurance policies from many of the biggest life insurance companies. Once a child reaches adulthood, a parent or grandparent can transfer ownership of the policy to his or her child.
Another less well known option is adding a small amount of coverage for a child to your term life insurance policy, which will expire at the end of the term or when the child reaches adulthood.
Another example is joint life insurance policies for spouses. You can get first-to-die or survivorship (also known as second-to-die) policies. For the former, the policy pays out if one person dies. For the latter, the policy doesn’t pay out until both parties are deceased, meaning that it doesn’t work as an income replacement.
Pros and Cons of Family Life Insurance
Child Life Insurance
If you have a sickly child, purchasing a life insurance policy for him or her now could be a good idea, as that child may have difficulties finding a life insurance policy as an adult.
Spouse Life Insurance
With separate life insurance policies for spouses, you can customize the policies to your different needs. For example, the primary breadwinner might have a larger policy while the spouse that works part-time or stays at home has less coverage.
Child Life Insurance
Some people argue that whole life insurance is a good option for insuring children because they’ll reap the benefits of the cash value even if there isn’t an unfortunate passing. The reality is that the investment returns on whole life insurance policies are normally lower than what you would get in the market itself, so consider that when making your decision.
In most cases, life insurance for children is unnecessary because life insurance is meant to protect income, and most children don’t have any income.
One alternative to life insurance for children is taking the money you would have put toward a life insurance policy and put it toward a 529 fund for their education.
Spouse Life Insurance
You may not need life insurance for your spouse if you are financially stable enough that you can cover any expenses like childcare or funeral costs in the event of an unexpected death. In that case, your money might be better spent put towards an investment or other savings goal.
Considerations for Choosing a Plan and Final Thoughts
Getting life insurance for a child is usually costly and unnecessary unless your child has serious medical concerns. A good alternative is adding a child rider to your term life insurance policy, which will provide a death benefit in the event that one of your children passes away. This is a good option because a single rider often covers all of your children, and you can typically buy $1,000 worth of coverage for roughly $5 a year.
At the end of the day, you’ll want to approach family life insurance the same way you would approach any other life insurance policy. Figure out what the needs are of your family, compare companies and plans, and select the best plan for you.