Perhaps the number one reason people buy life insurance is to protect their family.
Life insurance coverage provides your close family members with a financial safety net in the event you were to die unexpectedly.
It enables them to continue living as if you were still around, at least financially, without worrying where the money will come from.
Many people want to take this idea of financial safety and security one step further by investing in a family plan for life insurance.
The idea is the family plan actually provides life insurance coverage for every member of the family under the plan, both parents and children.
Does such a plan exist?
We answer this question (and more) below.
Why Buy Life Insurance for Your Family?
The simple answer is to provide further financial protection to your family.
Chances are you’re not the only person earning an income in your family, or providing a financial value of some type.
There’s a good chance your spouse is also generating an income, or performing household tasks which would otherwise cost you money to have accomplished while you worked.
What happens if your spouse dies?
Without life insurance, their income won’t be replaced.
That makes life much more difficult for you, especially if you have children that you’re trying to raise, now with less money.
If your spouse also has life insurance, then the death benefit from their policy can be used, so you can continue to live life as normally as possible, without being strapped for cash.
Policies are also available for children, although these are slightly different from the policies that adults usually purchase.
Children usually don’t earn an income for the family, so no income needs to be replaced with the life insurance plan if they die.
What children can benefit from is a small life insurance plan that pays out a small death benefit that can be used for funeral and other death expenses.
Buying Life Insurance for Someone Else
This is where things get tricky.
Buying life insurance for someone else is more difficult than buying life insurance for yourself.
It’s much easier for you to buy your own life insurance and for your spouse to buy their own life insurance separately. Then you can buy small plans for your children together.
That’s not exactly a family plan, but it accomplishes pretty much the same thing.
If you do choose to buy life insurance for someone else in your family, there are a few things you must understand.
First, you must be able to show that you have a monetary interest in that person’s life. That their death will impact you and the rest of their family financially.
That’s why buying life insurance for someone in your family is difficult. You have to prove that you depend, at least partially, on them financially.
This is generally fairly easy with your spouse and children. It becomes a little more difficult if you’re attempting to buy life insurance on a brother or sister.
Here are 9 relationships where you can usually buy life insurance for another person:
- Divorced spouse
- Key employees
- Business partners
- Non-profit donors
- Yourself (if taking sizable loan from bank or lender)
It’s also important to note the person you’re buying life insurance for must know you’re buying it on them.
You can’t buy a life insurance policy on someone else without their consent.
This generally isn’t difficult when buying it for a close family member.
Buying a Life Insurance Family Plan
There are a handful of life insurance companies who offer actual family plans.
These family plans provide coverage for everyone in the family. This usually means for the two spouses and any children (who must be 15 days or older, or up to age 18).
The benefits of a life insurance family plan are hit or miss. They undoubtedly make everything simple and more straightforward, but they’re often more expensive, especially when you may keep it a decade or longer.
We recommend comparing the cost of buying each life insurance plan separately to the cost of the family plan you’re interested in.
Buying Family Life Insurance Separately
Great family plans for life insurance do exist.
However, you can often find a better deal with the exact type of coverage you desire if you build your family plan separately.
This consists of first buying life insurance coverage for you and your spouse. And then buying life insurance coverage for your children.
It’s almost always cheaper to buy your own life insurance coverage and have your spouse buy their own life insurance coverage than it is to buy a combined plan.
Not only is buying two separate policies the most affordable option, but it also gives you more options to choose from, so that you can tailor your plan to your own individual needs and preferences.
The next step is covering your children. Many people decide not to buy life insurance for their children despite the many benefits.
First off, it’s cheap.
Your kids don’t need huge life insurance policies; very small policies will do just fine.
These small policies generally only pay a small death benefit. In the vicinity of a few thousand dollars, these benefits can be used to cover funeral and other death expenses.
Another option is to purchase a child rider on your life insurance policy. This is a life insurance policy built on top of your personal life insurance policy.
Child riders can be used to cover multiple children. Buying a separate plan for your children covers each child separately.
The child rider option is also the cheapest. Many life insurance policies offer child riders at a cost of roughly $5 per year for every $1,000 of coverage desired.
In our opinion, there are few reasons to not go with the child rider option.
What to Expect
The process of buying life insurance for your family, whether separately or through a family plan, is the same as buying life insurance for yourself.
Each person must go through the application process. Applications must be submitted for each person for the company underwriters to review.
Applications for whole life insurance (permanent policies) generally cover information such as:
- Personal information
- Lifestyle (drinking and smoking)
- Weight and BMI
- Overall Health
- Medical History
- Known medical conditions
The purpose of collecting this information is so the underwriters can assess the overall risk of each applicant to come up with the premium and coverage type.
Without this, they can’t properly price the policy you’re purchasing; but, remember, you want to give them more information, because it helps your policy to get cheaper!
Note that while both you and your spouse will have to go through an extensive application process, children generally don’t have to when added via the child rider option.
Buying Life Insurance for Your Family
Peace of mind is extremely important.
And, ensuring your entire family is covered with life insurance provides that.
We recommend buying each policy separately. Start by buying policies for you and your spouse and then adding the child rider option for your children.
Doing this step by step process ensures the entire family is covered.
It protects your family in the scenario that someone passes away unexpectedly.
Of course, you still have a lot of options to choose from and decisions to make while selecting the right plans.
That’s why we recommend taking your time.
If you have any questions, feel free to reach out to us and we’ll guide you along the way.