If you’re adopted or are adopting a child, you may be concerned about how this affects your life insurance policy. But for the most part, adoption shouldn’t affect your life insurance coverage. As long as you’re truthful on your life insurance application, your beneficiaries should still receive the life insurance payout.
And if you’re buying life insurance for your adopted child, they have all of the same rights to receive the life insurance payout as a biological child would. Read on to learn more about how life insurance works with adoption.
Life insurance terms you should know
Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.
Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.
Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.
Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.
Insured: The person who is covered by the insurance policy.
Policy: The legal document that includes the terms and conditions of your life insurance contract.
Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.
Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.
Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.
Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.
Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.
Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.
Buying life insurance if you’re adopted
The only time your adoption will come into play during the life insurance application process is when you’re asked about your family history, which is just one part of the robust overview of your health conducted by life insurance companies.
Even if you’re in great health now, they want to evaluate if you’re predisposed to any genetic conditions that could affect your health down the road — in other words, the risk that you die while your life insurance policy is active, which would increase your insurance risk.
How does adoption affect your family history?
Even though family history plays a role in the life insurance application decision process, you won’t receive an adverse decision if you don’t know your biological family’s medical history. Instead, it simply won’t be included in your health profile.
“If a proposed insured is adopted and does not have any information regarding their biological family history, that can be noted and the underwriter will assume [a] best-case scenario,” says Eloise Spinello, director of life operations at Policygenius. “What is known, however, should be disclosed to avoid any contestability concerns down the road.”
If you’re asked about your family history and you’re adopted, one of the two following situations may occur.
1. You don't know your biological family’s history and it will be marked as ‘unknown’ in your application.
If you don’t know the health history of your biological family, insurers won’t hold this against you on your application. Your family history will be marked as ‘unknown’ and noted that you’re adopted.
2. You do know information about your biological family’s history and provide the underwriter with as many details as you’re aware of.
Whatever you do know about your biological family’s medical background, you should disclose it to the underwriter.
The most important thing is to answer the questions about your family history — and every other part of the life insurance application — to the best of your knowledge. As long as you’re forthcoming on your application, whether or not you know any information about your birth family, you shouldn’t have any issues with your life insurance policy.
But, whatever you do, be honest. Any indication that you intentionally withheld information during your life insurance application is considered life insurance fraud and could result in your policy being canceled by the insurer — meaning they won’t pay out the death benefit to your beneficiaries.
Buying life insurance for your adopted child
If you have an adopted child, they’re equally as eligible for life insurance benefits as your biological child would be. Insurance companies can’t discriminate against your child, whether or not they’re biological or adopted — your adopted child has the same rights as your biological child, as long as you have legal guardianship. [1]
Additionally, life insurance companies are concerned with insurable interest, or the justification for why someone should be the beneficiary of your life insurance policy. If your beneficiary has an insurable interest, that means that they’ll suffer financially in the event of your death.
However, naming a minor as your life insurance beneficiary usually isn’t a good idea in the first place. Life insurance companies can’t pay out the death benefit to anyone who isn’t legally an adult, which is 18 in most states but 19 in Alabama and Nebraska.
Instead, you should name a trusted guardian or trust as your beneficiary. They can then disperse the life insurance death benefit according to your wishes.
Buying life insurance if you’re in the process of adopting a child
If you’re in the process of adopting a child, you’re probably considering buying life insurance to ensure their well-being if you die prematurely. In fact, some states (like Mississippi) [2] and agencies require you to have a life insurance policy, though this varies by state and agency.
Whether or not you’re required to purchase a life insurance policy, getting coverage as soon as possible is important to secure the lowest possible rates. Life insurance premiums increase between 4.5% and 9.2% every year you age, so getting coverage sooner rather than later can secure the optimal amount of coverage at an affordable price.
While you should wait until your adoption is finalized to name your child as the beneficiary, as we said above, we recommend that you name a guardian or trust as the beneficiary instead to avoid any delays in the payout.
You can (and should!) update the beneficiaries of your policy at any time, and especially during a big life event like an adoption. Updating your policy during any life change makes sure that it still covers your needs. And if it doesn’t, you can make adjustments accordingly.
