A family life insurance policy can be designed to suit your needs to help ensure that you are financially prepared for an unexpected tragedy. In the event a member of the family passes away, beneficiaries of a life insurance policy can receive a financial death benefit. Life insurance for families includes a variety of policies, such as term life policies, which cover a certain period of time, or whole life policies, which never expire as long as premiums are paid.

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If you are looking for family life insurance, this article might help you understand what family life insurance is, what you can expect from obtaining a policy and why family insurance is or is not right for you based on your financial goals. As with homeowners or auto insurance, life insurance coverage options can be chosen to fit each person’s circumstances and financial objectives. Explore how family life insurance plans work and how to find a policy that works for you.

Why you should consider buying a family life insurance plan

Family life insurance may help to secure your family’s financial future if the unexpected occurs. The death benefit may be used to cover costly funeral expenses, but it may also be used to cover major outstanding debts or help replace income in the event one or more family members pass away.

Some families opt to take out a term life insurance policy, which covers you and your loved ones for a period of time (usually 10 to 30 years) and may be priced at a lower premium. Term policies are designed to pay out a death benefit if you pass away during the coverage time frame. If you don’t pass away in the predetermined window of time, your policy will typically expire and your beneficiaries won’t receive a death benefit. However, it is possible with some life insurance companies to purchase a conversion rider, which allows you to convert a term policy to a permanent policy at the end of your term.

Permanent life insurance, on the other hand, remains active for the duration of your life as long as premiums are paid. It’s typically much more expensive than term life insurance and comes with a cash value account that can gain interest and/or returns over the course of the policy. You may be able to borrow against this money, use it to pay your premiums or withdraw it from your account.

Buying life insurance as a parent

When you’re a parent, a life insurance policy provides a level of financial security in case you or your spouse dies during a time when you still have kids or other dependents at home. It can help to replace income when a working parent passes away unexpectedly. And, for a stay-at-home parent, the death benefit can help cover the cost of childcare, cooking and cleaning costs if the parent who normally handles these tasks passes away. Think about the value of your income, debts and other relevant expenses when figuring out how much life insurance you may need for each member of your family.

You may be in the process of deciding what policy type is right for you. The following policy types are popular options for parents.

  • Term life insurance: Term life insurance is typically much cheaper than whole life insurance, as a payout is not necessarily guaranteed for the life of the policy. As a result, term policies may be a great option for families on a budget who only want life insurance coverage for a specific number of years, such as when their children are young and financial support is likely most critical.
  • Whole life insurance: Whole life insurance is typically much more expensive than term life, as it remains in effect for your entire lifetime and a payout is considered inevitable. It also comes with a cash value account that can gain interest and/or returns, depending on the type of permanent or whole life insurance policy you have. You may be able to borrow against or withdraw funds from this account over the course of your life. Depending on your goals, whole life insurance may be a great option for some families.
  • Joint life insurance: First-to-die joint life insurance policies pay out the death benefit when the first spouse dies. This type of policy may be cheaper than purchasing two separate policies. The other option is a second-to-die policy, which pays out the benefit after both spouses pass away. Leaving an inheritance to your children in this way may be beneficial from a tax standpoint, since death benefits are usually free from income tax when they are paid out to the beneficiaries.

Joint life insurance policies

As a less commonly discussed type of life insurance, you may be wondering how joint life insurance policies work. Joint life insurance is typically considered a type of permanent life insurance, which is effective for as long as you pay the premiums. It covers multiple people and can be structured to build cash value and yield a tax-free death benefit. However, you may also be able to purchase joint life insurance policies that expire after 20 or 30 years, similar to term life insurance.

Joint life insurance policies are not as common as individual insurance policies, but it may be right for couples who both expect to have some form of life insurance in place. In some cases, buying a joint policy can be cheaper than if two individuals have separate policies. The two different types of joint life insurance include first-to-die life insurance, where the benefit is paid when the first of the two spouses dies, and second-to-die life insurance, where the benefit is paid when both spouses die. If you’re not sure which type of joint life insurance policy would be right for you, it may be beneficial to review a life insurance guide or talk with a licensed life insurance agent.

Pros Cons
It can often be cheaper due to less underwriting labor. If one spouse has health issues, a joint policy may increase the other spouse’s life insurance costs.
It can be helpful with estate planning by relieving some of the issues caused by probate (the process of validating and executing on a will). Joint life policyholders may need to wait a longer time before the death benefit can be paid out.
A divorce could complicate the process of splitting the joint insurance.

Buying life insurance policies for children

Most families may not instinctively consider getting life insurance for their children. After all, children typically don’t contribute financially to the household and they are generally at a lower risk of death than older individuals. However, there are a few reasons life insurance for children could be helpful. The first reason would be to account for an untimely passing, in which case you could take out a small policy to cover final expenses.

Another reason is to lock in an affordable whole life premium at a young age before any pre-existing conditions appear. Developing health conditions could make it expensive for a child to get their own insurance later in life as a young or older adult. Instead, you could get a policy early and transfer the policy to your child when they turn of age, typically 21 years old.

Can you buy life insurance for your parents?

While there are strict rules about who you can take out a life insurance policy on, you can purchase life insurance for your parents to help cover any expenses they may leave behind. Buying family life insurance for your parents can help them (and you) financially in a number of ways. For example, a death benefit can help the surviving parent if they largely rely on the other for retirement income or other benefits.

An accelerated death benefit rider could allow them to tap into policy funds to pay for long-term care. Alternatively, if you’re named the beneficiary for a standard life insurance policy, you would receive the benefit when the policyholder passes away. This might help replace any income you’ve lost or expenses you’ve incurred if you act as a caregiver in their final years.

Frequently asked questions

What is not covered by life insurance?

Certain circumstances are not covered by most standard life insurance policies. Death caused by war and suicide are two causes that usually nullify someone’s ability to receive the death benefit. Some policies also don’t cover deaths from an airplane accident. These are things to consider when reading your policy’s fine print.

What happens if you outlive your term life insurance policy?

If you don’t pass away within the policy term, your term life insurance policy will expire and your beneficiaries won’t receive a death benefit. If you want the option to maintain your coverage beyond the number of years set out in your term policy, you may be able to purchase a conversion rider, which allows you to convert to permanent insurance before the policy ends. Some companies will allow you to convert to a permanent policy, but will decrease your death benefit in the process. Talk with your life insurance agent to verify the details of your individual policy.

Who needs life insurance the most?

It may be in your best financial interest to prioritize getting family life insurance when you have dependents who rely on you. This is true for both working and stay-at-home parents, as either your income or your role in the family may need to be replaced if you pass away. For older parents, life insurance can help cover costly medical expenses and resolve debt that your survivors may not be able to afford when you’re gone.

If you have no dependents or don’t have any type of financial insecurity, a life insurance policy may not be worth the price. You may also decide based on your financial situation that your children do not need life insurance. Instead, you may choose to consider an educational savings account that comes with tax benefits since it provides another way to save money for your children’s future.

Can I get life insurance without completing a medical exam?

Many life insurance companies offer policies that don’t require a medical exam, but these may be more expensive than permanent or term life insurance policies that do require a medical exam. Why? A medical exam helps insurance companies determine your risk level and determine a premium based on that assessment. If you are in good health, an exam may help you secure a lower premium. Otherwise, a non-medical exam policy may cost you more.

What is the best life insurance company?

The best life insurance company depends on your individual needs and preferences, as well as your current health and other factors. First, you may want to narrow down which type of life insurance policy you want. From there, an independent insurance agent may be able to help you find the companies that offer your desired policy type. Once you know which companies offer the right policies for you, it can be helpful to compare third-party customer satisfaction scores from J.D. Power and financial strength scores from AM Best to see how companies stack up.