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Family life insurance

Updated Mar 14, 2024

Although there is no single type of life insurance that is technically known as a family life insurance policy, there is a broad range of insurance options that may benefit you and your family. Family life insurance plans can protect your dependents from financial stress in the event that you are not around, while also offering you peace of mind in knowing that your loved ones will be able to do things like pay the mortgage or cover college tuition costs in your absence. Some types of family life insurance may also generate cash value you can access while you live, acting as a vital part of a strategic financial plan. Knowing when to consider family life insurance, and understanding your options and objectives in advance, can help you make the right decision when it’s time to get life insurance for your family.

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This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. HomeInsurance.com LLC services are only available in states where it is licensed and insurance coverage through HomeInsurance.com may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

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What is family life insurance?

If you are wondering whether you need family life insurance, a good first step is to consider the financial consequences that would result if you were to pass away. If you have a partner or spouse, would they be able to maintain the lifestyle that they currently enjoy? If you have children, how will your spouse manage all the costs of raising and educating a child in your absence? A robust life insurance policy can cover these costs and more.

There are two primary categories of life insurance to choose from: term and permanent. Term insurance is temporary coverage that lasts for a certain number of years, often between 10 and 30. It's an inexpensive option, but it's important to note that the policy only pays out a death benefit if you die while the term is in effect, unless it includes a rider that allows you to convert it to a permanent insurance policy.

Permanent insurance is the other main type of life insurance. These policies are intended to last for your lifetime, as long as you pay the premiums. They also feature another benefit, called the cash value, that allows you to earn interest on part of the premium you pay for the policy. In many cases, you can borrow from that amount during your lifetime. Permament insurance is usually more expensive than term insurance but has the added benefit of that cash value and lifetime coverage.

Why consider buying family life insurance?

Family life insurance may help to secure your family’s financial future if the unexpected occurs. Family life coverage doesn’t consist of just one policy but can include multiple policies to provide coverage on all family members, such as both parents and children. A family member’s death benefit may be used to cover costly funeral expenses, but it can also be used to cover major outstanding debts or help replace lost income.

Your family life insurance policy can also be included as part of your general financial strategy, especially if you have a permanent policy with cash value accumulation. For high-wealth individuals, there may be tax benefits that an insurance policy offers to both you and your beneficiaries. A financial advisor can help you determine if this is true for your case.

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 the coverage is temporary. 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, you may be able to borrow against over the course of your life. Depending on the type of whole life you get, you may also be eligible to receive dividends based on the insurer’s annual profits. Depending on your goals, whole life insurance may be a great option for some families.
  • Universal life insurance: Universal life insurance typically costs more than term but less than whole life insurance. It’s a permanent coverage option that offers more flexibility for the policyholder; the premium and death benefit can often be adjusted based on your life circumstances. Like whole life, universal accumulates cash value you can borrow against, but you can also withdraw from it.
  • Joint life insurance: Joint life insurance is commonly shared by married couples. It provides coverage on two people, under one policy. These policies may cost less than two individual policies, depending on each partner’s health conditions, and will either pay out when the first person dies or once both have passed away.

    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.

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 two 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 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

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    It can often be cheaper due to less underwriting labor.

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    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).

CONS

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    If one person has health issues, a joint policy may increase the other person’s life insurance costs.

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    Joint life policyholders may need to wait a longer time before the death benefit can be paid out.

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    If policyholders are married, 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.

Some riders may even 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

Written by
Mary Van Keuren
Contributor, Insurance

Mary Van Keuren has written for insurance domains such as Bankrate, Coverage.com, and The Simple Dollar for the past five years, specializing in home and auto insurance. She has also written extensively for consumer websites including Reviews.com and Slumber Yard. Prior to that, she worked as a writer in academia for several decades.

Edited by Editor II, Insurance