When it comes to life insurance, everyone in your family can benefit from coverage. And family life insurance plans cover you and your family. There is no one-size-fits-all solution when it comes to the types of insurance and coverage amounts you need. Therefore, family life insurance usually takes the form of many different policies and riders combined to fit your individual needs.
Life insurance can seem overwhelming, but it is a key component of the protection assets in the 5 pillars of personal finance.
Learn all about family life insurance so you can protect all your loved ones.
Key Takeaways:
- Family life insurance is a catch-all term for a coverage plan for you and your loved ones
- You can have a series of stand alone products, joint life products, and/or coverage riders for different family members
- Child life insurance can not only help with expenses in the unthinkable situation where you lose a child, but also locks in the child’s future insurability
- Elder coverage can help with estate planning and passing along assets outside of probate
Family Life Insurance Explained
Family life insurance describes life insurance policies that provide coverage for each member of your family. It is a catchall term for policies on the various people you love.
There is a wide range of policies that commonly get referred to as family life insurance, but it mainly refers to a whole life insurance product for the primary income earner with add on term life insurance for the spouse and dependents.
However, the life insurance coverage plan can come in many combinations of term and permanent products on each individual.
For instance, every member could have term life insurance coverage or both adults could have permanent coverage with term on the kids. You can even have a family life insurance policy where everyone has permanent coverage.
The policies can be used to cover funeral costs, college debt, replace lost income, cover the contributions of a stay-at-home parent, or lock-in insurability of a child.
A common feature is a term conversion rider on the child term policies. Term conversion riders allow for the policy holder to convert the product from a term life insurance to a permanent life insurance. Typically, this option becomes usable when the child reaches adulthood.
Family Life Insurance For Children
No parent wants to imagine losing a child. Life insurance on a child isn’t just about having a benefit to cover the cost of a proper burial though. Having a convertible life insurance product on a child guarantees future insurability.
If your child finds themself with a health condition that makes getting a new policy impossible or prohibitively expensive to qualify for, they can convert their child policy to a permanent adult policy without undergoing underwriting.
Parent and Grandparent Life Insurance
Family life insurance can also have coverage for parents and grandparents. The older you get, the harder it is to qualify for a life insurance product. But bundling coverage for parents and grandparents with your own life product can help.
Often, seniors can only qualify for a final expense insurance product which is a small whole life policy meant to cover funeral expenses and other various final bills. Final expense is typically for coverage amounts less than $50,000.
Additionally, you may be able to get a standalone term, permanent, or final expense product for your parents and grandparents. Life insurance is a great way to do estate planning and pass on assets outside of probate.
Even an unhealthy older member of your family can likely qualify for a final expense product as these are simplified issued products that don’t require medical underwriting typically. (Learn about the different types of underwriting in the beginners guide to life insurance here).
Family Life Insurance vs. Joint Life Insurance
Joint life insurance is a product that covers 2 lives, generally spouses. The policy can be structured as either first-to-die (FTD) or last survivor (LS).
- A FTD policy pays out the benefit when either spouse dies. This provides the surviving spouse with the financial support they need.
- A LS policy pays out after the 2nd spouse dies. A LS joint life policy is to provide financial protection to the beneficiaries (typically children) if both parents were to pass.
Since there is a higher likelihood a FTD policy pays out sooner, the price tends to be moderately higher than a LS policy.
Lastly, joint life in itself isn’t a family policy, but many joint life policies have the option of a term rider on dependents. And you can structure a joint life coverage by having a life insurance policy for the main breadwinner with add-on spousal riders for your spouse.
Should You Purchase Life Insurance For Your Family?
Life insurance can be overwhelming, but it doesn’t have to be. The big insurance companies can help answer your questions and decide what policies and amounts of coverage are right for your needs and budget. There are many available formulas for helping you calculate your life insurance needs available to you.
There are many types of life insurance products and each company has their own spin on it, so there is a product out there that is a good fit for your needs.
Additionally, life insurance riders are available to further customize your coverage if you want flexibility. Accelerated death benefit riders allow you to access your death benefit while living if you face a qualifying medical issue, for instance. Or waiver of premium riders allow you to skip premium payments if you experience financial hardships.
Lastly, life insurance is significantly cheaper to purchase when you are younger and healthier. It pays to be proactive and get life insurance when young. The last thing you want is to delay buying coverage and have tragedy strike.
The Final Word
There are many reasons you and your loved ones need life insurance (see the top 15 reasons to buy life insurance here). Designing a family life insurance coverage plan can help cover expenses when a loved one passes.
But a well-structured family life insurance plan can also provide future insurability for young children and flexibility to handle medical expenses in case of a serious illness.
Everyone’s insurance needs are different and sitting down with a financial planner to discuss your individual situation can help navigate the complexities of life insurance.
Frequently Asked Questions (FAQs):
Family life insurance is a catch-all term for life insurance policies that cover the various members of your family. These policies could be a series of stand alone products, a joint life product, or base products with riders that provide coverage for family.
There are 3 common types of family life insurance riders:
1) Spousal term riders – coverage that is valid for a pre-determined number of years and then expires, typically when the base term policy they are attached to expires or when the spouse reaches a certain age. These often have convertibility options to convert to an individual permanent product.
2) Child riders – similar to spousal term riders, these cover a child for a set period of time. Typically child riders cover a child from 15 days to 25 years old and also come with conversion privileges.
3) ‘Other insured’ riders – cover anyone that you have an ‘insurable interest’ in. This is anyone who’s passing would cause you to suffer financially, like a parent or grandparent.