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Having children can quickly change your perspective on life.
Priorities shift causing us to assess our financial plan.
Some of you may already be ahead of the game and purchased life insurance early on, possibly after getting married.
While you’ve probably given plenty of thought to how you can physically protect your children, financial protection can be just as important. After all, you have people who rely on you financially to put food on the table and pay the bills.
What will your family do if something happens to you? Life insurance for families is designed to protect everyone you love if the unthinkable happens.
According to a LIMRA study, 7 in 10 families would have trouble meeting monthly expenses within several months of the primary wage earner dying.
Life insurance works as a safety net to make sure your family’s taken care of if you can’t be there. Here’s a look at your coverage options and what you should know about a family life insurance policy.
Life Insurance for Families: How a Policy Works
A family life insurance policy is typically a term life insurance policy that covers everyone in your family with a single policy. It is considered a type of joint policy. In most cases, the policy covers two adults but you can choose to add children to your policy with rider coverage.
A family policy is a “pure” term life insurance policy. Term life insurance means the policy will pay out a death benefit if any of the named people die within the specific term, which may be 1 to 30 years.
Most family policies have a 10-year term. If a named person does not die, you will not get any of your premiums back. The policy won’t build cash value like a whole life insurance policy and it doesn’t provide dividends.
You can think of term life insurance as similar to renting a home. When you rent, you get to use the home immediately but only while you keep paying rent.
When your lease is up, you need to leave the home. No matter how long you rent, you do not have any equity in the home. This is similar to how a term policy works versus whole life insurance.
Instead, this kind of policy is designed to protect your loved ones for a specific period of time. If you or your spouse die during the policy term, your family gets a lump sum payment.
A family life insurance policy can be around 20% less expensive than purchasing individual policies. This is because there will only be one payout even if both parents were to die at the same time in a car accident.
Term life insurance for families is usually a good choice when the kids are young and money is tight because you can buy a high level of coverage when your family’s need for financial protection is at its greatest.
If you or your spouse passes away, your life insurance policy provides money to your family that can be used to:
- Make up for your lost wages
- Pay off debt
- Fund your child’s education
- Pay funeral costs.
- Pay housing costs
- Afford living expenses
- Pay for child care
- Provide retirement savings for a spouse
Family Insurance Coverage and Premium Increases
In most cases, a family term life insurance policy includes $100,000 in coverage per adult with up to $1,000,000 per insured adult. Most policies include about $10,000 coverage for each child in your family at no extra cost. You can choose to increase or decrease your coverage amount, usually in increments of $50,000.
With most policies, you will not worry about rising premiums until the 10th anniversary of your policy (or whichever term you chose). At that point, your premium may go up each year.
If you’re worried about rising premiums, make sure you pay attention to the premium guarantee.
Riders – What you need to know
There are many types of riders and some deserve a fair amount of detail. For the moment, we’ll focus on the simple explanations for the most common riders that may be used with a family life insurance policy.
An insurance policy “rider” is additional coverage you can buy separately from your policy.
The following riders can help you customize your family life insurance policy to give you the coverage you need:
Disability Waiver Rider
A Disability Waiver Rider will waive all future insurance premiums and keep the policy in effect if one of the insured adults is totally disabled. You need to buy this rider when you get your policy.
Living Benefits Rider
While term life insurance does not provide any benefits while you’re still alive, you can choose the optional Living Benefits Rider, which lets you take some of your policy’s death benefits if you or your covered spouse are diagnosed with a terminal illness and you have a life expectancy of less than one year. This allows you to continue providing for your family while you’re still alive.
Children’s Term Rider
Once you and your spouse are covered under a life insurance policy, you can add children with a children’s term rider. This rider adds additional life insurance coverage for each child in your family, including kids you haven’t had yet! As your family grows, any new children you have will automatically be added to your life insurance.
Converting Your Family Life Insurance
A final important consideration is the convertibility of your policy.
Most life insurance for families is sold as term insurance policies, which means you will have insurance for a specific period of time. You can usually choose to convert your policy to a whole life insurance policy in the future if you like.
Make sure you understand the rules; some policies allow you to convert to whole life insurance at any time while others require you do it within the first few years or when your term is up.
Convertibility is an important provision to understand because you can convert your term policy to a permanent “whole” policy without providing evidence of insurability (such as a medical exam). Converting your term policy in the future into a permanent policy may be a good idea because it lets you “lock in” your fixed premium. Your coverage will never be canceled as long as you pay your premiums.
If you decide that a family policy isn’t the right fit, you will still want to explore all options including those for stay at home moms whose financial value to the family may surprise you.
Always remember that premiums can vary widely between companies.
That’s why it’s SO important that you understand how the different carriers might view your families unique situation. Shopping around will result in you getting the best life insurance coverage for your needs at an affordable premium.
The secret to getting the lowest rate is placing you in a policy with the company who views you in the most favorable light.
The truth is while the quote engine is a great place to start, if you are applying for a family life insurance policy, your best bet is to work with someone who understands the complicated guidelines and will fight on your behalf to get the lowest rate for your situation.
We are one of the rare independent brokers that only sells life insurance so we’re focused solely on that without distractions, and our clients reap the rewards.
If you are ready to get started, please fill out a quote request or always feel free to contact us with any questions. We are here to help and will never pressure you in any way.