There are many reasons why someone might not have life insurance yet, but often it’s because they feel overwhelmed by the options. Here’s all you need to know about life insurance for families so that you can feel confident that you understand the possibilities when looking for a life insurance provider for you this holiday period.
Why You Need Life Insurance for Your Family
Sometimes, life insurance feels like a gamble with no guarantee you’ll get anything back after paying premiums for 20 years. So, here are several reminders about why you need life insurance for your family.
Funeral costs. Unless you have a burial plan, your family will have to pay the cost of your burial ceremony. These can be expensive. You don’t want your family to have to worry about finding the money to bury you at a time when they’ll need to mourn.
Income replacement. When you pass away, who will be the family breadwinner? If your stay-at-home partner goes out to work, who will look after the children while they are out? Or like most homes, perhaps yours relies on a 2-person income. Life insurance means that none of your loved ones has to deal with the stress of figuring out how to support the family while they are still grieving.
Estate tax. Estate taxes can run high, and you don't want your family to be worried about paying them once you're gone. With a life insurance policy, you can make sure that the payout is enough to deal with it, and leave your inheritance untouched for your heirs.
To secure your children’s future. Without you around, will your children be able to pay for college or training for their future career? Leaving an insurance payout behind you covers their future.
Pay off debt. Your life insurance policy can be used to pay off debt like auto loans or a mortgage so that your loved ones don’t face the fear of losing their car or their home.
What Are the Types of Family Life Insurance?
When you set out to buy life insurance for your family, you’ll see a few options. Here are the main types of family life insurance.
Term Life Insurance
Term life insurance is the simplest and the least expensive type of life insurance. It’s called ‘term life,’ because you’ll buy a policy for a fixed term—frequently 10, 15, or 20 years. If you pass on during the term of the policy, the insurer will pay out a fixed amount. If you outlive the term, your policy will just expire, although you can renew the policy for another term. Some term life policies come with the option of converting to a whole life policy at some point.
If you buy term life insurance, setting the length of the term is critical. Most parents want life insurance to cover them until their youngest child has started or finished college, but you might want it to last for a longer period of time, or to have a larger policy until your youngest child graduates, and then keep a smaller policy for the rest of your life.
Whole Life Insurance
There are a few versions of whole life insurance, but all of them share the same basic features. Whole life insurance never expires. You’ll pay a fixed premium throughout your life, or until you decide to cash in your policy. With a whole life insurance policy, there’s a cash investment portion as well as a death benefits portion. You can borrow tax-free against the cash investment part during your lifetime, which isn’t an option with term life insurance.
Group Life Insurance
Many employers offer group life insurance for their employees, which can include your family members too. Group life insurance is cheaper than an individual policy, but you might not get the amounts you want, and if you change jobs you would have to give up the policy.
Joint Life Insurance
You could buy an individual policy for each member of your family (depending on how many people you want to insure), or buy a joint policy for you and your spouse. A joint insurance policy is usually a whole life policy, with a cash investment element. Joint life insurance is either ‘first to die’ or ‘second to die.’ That means the policy pays out when one spouse dies, or only when both spouses die.
Child Life Insurance
Life insurance companies often encourage people to buy life insurance for their children. Sometimes, you can add a rider to your own policy, which extends coverage to your children as well. Usually, child or baby life insurance is a whole life insurance policy, and it's marketed as a way of saving for your children's future. However, life insurance policies aren't the most favorable long-term savings vehicle. The only good reason to get child life insurance is if you have reason to think that your child could develop a serious medical condition in early life, which would make it hard for them to get life insurance later on.
Life Insurance is Part of Family Life
Families should have some kind of life insurance. The question is which is going to be the right choice for your family situation. Now that you know about all the main types of family life insurance, all that’s left is for you to take the plunge, compare life insurance providers and get yourself covered so you can give you and your family peace of mind.