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Life insurance coverage for the entire family can provide you and your loved ones with much needed financial security — but with all the options out there, what type of coverage should you actually buy?
Updated July 15, 2020
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Purchasing a life insurance policy for yourself is always a good idea; it ensures that your family members won’t suffer financially in the event of your death. Unfortunately, to be fully prepared for a death in the family, insuring just yourself might not be enough. If you’re married, have kids, or depend on your parents for money, you may need to consider their life insurance coverage as well.
Spouses can choose between purchasing two separate life insurance policies or one shared policy
Most children don’t need life insurance coverage
You can't buy life insurance for your parents unless you can prove their death would financially affect you
A life insurance policy is meant to protect your dependents in the event of your death by providing the financial security they might have otherwise lost without you around. Chances are, you share responsibilities with your spouse and their death would also financially impact your household, which means that both of you should have life insurance as a plan for the future.
Even if your partner stays at home and doesn’t bring in an income, they likely provide childcare and other services you would have to pay someone else to do in the event of their death.
If you opt to purchase individual life insurance policies for you and your spouse, each person will need to go through the application process separately. Your life insurance policy might differ from the policy and rates that your spouse receives, although you can work with a Policygenius adviser to help you navigate the application process as a familial unit. To simplify things, you may even be able to take the paramedical exam at the same time.
There are two types of individual life insurance policies to consider: term insurance and whole, a type of permanent life insurance. Each policy varies in price, length, and what it offers:
|FEATURES||TERM LIFE INSURANCE||WHOLE LIFE INSURANCE|
|Duration||1 - 30 years||Life|
|Cost||$25-35/month||5-15x more than term|
|Guaranteed Death Benefit?||Yes||Yes|
|Guaranteed Cash Value?||No||Yes|
|How Cash Value Grows||N/A||Earns interest at a predetermined fixed rate|
|Premiums||Can increase periodically or stay level for the policy duration||Level|
|Notes||No risk of losing coverage, but no cash value when term ends||No risk compared to other permanent types, but you may find better investment options elsewhere|
Methodology: Policy data based on quotes and policies offered by Policygenius in 2020.
Whole life insurance is generally the more expensive option, whereas term life insurance tends to be simpler and cheaper, making term life the best choice for most people.
For the sake of simplicity, you may be considering sharing an insurance policy with your partner. With a joint life insurance policy, you’ll only have to manage one life insurance policy between the two of you. Joint life insurance policies cover both people in a marriage and are typically permanent universal life insurance policies.
There are two types of joint policies: first-to-die life insurance, which pays the death benefit after the first spouse dies, and second-to-die (survivorship) life insurance, which pays the death benefit after the second spouse dies. Second-to-die is most useful when paying estate taxes or for inheritance planning.
Because most joint policies are permanent life insurance policies, they are generally more expensive than term policies. However, there are certain circumstances where it can be cheaper to purchase a joint life insurance policy as opposed to two individual life insurance policies. For example, if one spouse has a pre-existing medical condition or is in poor health, a separate policy for that spouse may be too expensive or even impossible to buy, but they might be able to get life insurance through a joint policy.
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There are a few other components of a joint life insurance policy to be aware of:
If one of the spouses has a medical condition that increases the cost of the joint policy’s premiums and dies, the surviving spouse will have to pay considerably higher premium rates than they would have with an individual policy.
Joint policies tend to have longer wait times before the death benefit can be paid out.
In the case of a divorce, a joint policy can be difficult to split between the two partners.
Even though both spouses will be sharing a policy, each individual still has to go through underwriting and take a medical exam, just as they would if they were purchasing an individual life insurance policy.
Most people don’t need to buy life insurance for their kids, but there can be legitimate reasons to purchase children’s life insurance. A small lump-sum death benefit in case of a child’s death can help parents pay for funeral expenses or enable them to take time off work to grieve. You don’t need to buy a million-dollar life insurance policy, but a small death benefit of a few thousand dollars might be worth considering.
There are two ways to buy life insurance for children. You can either purchase a child rider on your own term life insurance policy or you can buy a specialized child life insurance policy.
Child riders on your term life insurance policy are additions to a parent’s policy and are relatively cheap — often only $5 per year for every $1,000 of coverage. That means you’ll only pay about $4.17 a month for $10,000 of coverage. Adding a single child rider will also cover all of the children in your household, unlike a child life insurance policy, which operates on a per-child basis. If you decide in the future that your child needs his or her own insurance policy, you can convert your child term rider into a child life insurance policy.
Child life insurance policies are just whole insurance policies for children and are a lot more expensive than adding a child rider to your own policy. Whole life insurance policies, a type of permanent life insurance, are sometimes considered both a life insurance policy and a potential savings vehicle. Many people buy child life insurance policies thinking it will help their child pay for college or build savings for when their child becomes a young adult. However, there are better ways to save for their financial future.
The one exception where a child life insurance policy might be worthwhile is if your child is likely to develop a medical condition that would make buying life insurance later in life difficult. In this scenario, buying your child a life insurance policy now protects their insurability for the future.
You technically can’t buy life insurance for your parents unless you can prove insurable interest — which means that you would financially suffer in the event of your parents’ death. This could include any loans your parents have co-signed or if a parent helps with childcare.
What you can do, however, is ask your parents to apply for their own policies and pay the premiums for them. They would own the policy and name you as a beneficiary.
Even if your parents don’t currently provide you with any financial assistance, you can get coverage to pay for their end-of-life expenses by purchasing final expense insurance. This type of permanent insurance can cover funeral costs and ease the financial burden of a parent’s death.
Final expense insurance is a lot easier to buy for your parents than a generic permanent life insurance policy. Once you have their approval, you can calculate the costs of the policy, choose the beneficiaries, and pay the policy premiums.
Choosing the right type of life insurance policy and adding a rider for your kids provides coverage for the entire family. Life insurance can protect your family from the costs of unexpected death — funeral costs, an unfinished mortgage, unpaid student loan debt, lost income, future college savings — and a child rider can help parents take time to grieve without worrying about money.
Nupur Gambhir is a life insurance editor at Policygenius in New York City. She has researched and written extensively about life insurance since 2019, with specialties in life insurance companies, policy types, and end-of-life planning. Her writing on insurance and finance has appeared on MSN, The Financial Gym, and end-of-life planning service Cake. Previously, she worked in marketing and business development for travel and tech.
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