Life Insurance for Your Family and Children
There are several options for purchasing life insurance for your family, whether you are married, have children with your spouse, or are a single parent. The most important decision you must make is whether you want your children to be covered by a single life insurance policy or by multiple policies.
Why purchase life insurance for children?
Although it is never required that your children have life insurance, parents or grandparents will frequently purchase coverage to:
- Cover the costs associated with the child's death.
- Ensure the child's future insurability.
- Give the child the gift of an investment with a fixed rate of growth
A joint life insurance policy for yourself and your spouse can often save you money, but it is usually only available as permanent coverage. The reason you want coverage for your child's life insurance usually determines whether they should have their own policy or be added-on to yours.
End-of-life costs
According to the Centers for Disease Control and Prevention, child mortality rates are relatively low; however, the cost to your family when a child dies can be significant. The average funeral costs around $10,000, and the deceased's age has no bearing on the cost.
And, while children are rarely in debt when they die, families frequently incur costs associated with medical expenses, counselling, and time away from work to grieve. If you're concerned about the financial implications of your children's deaths, we recommend adding a child rider to your life insurance policy as an emergency fund.
Guaranteed insurability
If your child has pre-existing medical conditions, you will most likely have difficulty insuring them. A children's policy may help ensure your child has coverage if your family has a history of stroke or heart disease, which could make it difficult for a child to obtain life insurance later in life.
You can ensure that your child has coverage now and in the future by purchasing a child whole life insurance policy with a guaranteed insurability rider.
We discovered that insurers have expanded the list of pre-existing conditions for which you can obtain coverage, so your child is unlikely to have difficulty obtaining a policy as an adult due to medical issues.
Substance abuse not covered
One of the few reasons your child might become uninsurable as an adult is if they develop a substance abuse problem.
If your family has a history of drug or alcohol abuse and you're concerned about how this will affect your children, child life insurance may be a viable option.
Cash value
The guaranteed annual rate of return on whole life insurance is lower than that on alternative investments, but you may want your child to have a death benefit as well.
If you want to provide your child with both coverage and money for the future, a child whole life insurance policy will do both.
Because it has decades to grow, a child's cash value can skyrocket by the time they want to use it to pay for their education or another expense. Later on, you'll want to do the following to maximize the cash value of the policy:
- Pay premiums in one lump sum or over a shorter period of time, such as ten years.
- Purchase coverage from a mutual insurance company that pays dividends, as these can be used to increase coverage and cash value.
If, on the other hand, you simply want to leave money to your child and aren't concerned about having coverage if they pass away, we recommend investing your money in another product.
Child life insurance
Typically, child life insurance is sold as a whole life insurance policy with a death benefit of less than $100,000. Because a child is less likely to die than an adult, premiums are typically low and can be locked in for the duration of the child's life.
Child whole life insurance policies, like adult policies, have a cash value component. When you pay premiums, a portion of the money goes toward the cash value of the policy, which grows at a rate specified in the policy.
The cash value is essentially the amount of money you would receive if you decided to cancel the insurance policy, but it can also be borrowed against by the child once it reaches a certain size. Policy loans can be used for anything, from purchasing a car to covering medical expenses, and typically have lower interest rates than a personal loan.
You can usually get coverage if your child is at least two to three weeks old and you only need to answer some health questions rather than having your child undergo a medical exam.If your child already has a medical condition, you may have difficulty obtaining child life insurance or will have to pay relatively high premiums for the amount of coverage.
Child life insurance company | Sample underwriting questions |
Gerber | Within the past five years, has your child been treated or diagnosed by a physician for a respiratory disorder, heart disease or disorder, mental disease or disorder, or any other impairments or diseases? |
Mutual of Omaha | Has your child received medical care for or had a heart or circulatory system disease, congenital disability, or mental or developmental disorder? Has your child received medical care or had any other chronic medical condition that has required care within the past three years? |
Family life insurance with a single policy
The most common way to cover your spouse and children under a single policy is to use riders. Riders are basically add-ons to your life insurance policy that raise your premiums but allow you to tailor the coverage to your specific needs.
Because each insurer offers a unique set of riders based on the insurance policy you purchase.
Family life insurance riders are known by a variety of names, but the most common are "additional insured" and "child" riders. These riders are frequently available on term and whole life insurance policies, so you should not be prevented from purchasing the coverage of your choice.
Additional insured rider on a life Insurance policy
An additional insured rider can be used to add life insurance coverage for your spouse, a business partner, or almost anyone else who is financially dependent on you. Just keep in mind that, while it may appear easier, you may be able to get your husband or wife their own individual term life insurance policy for a lower cost.
Furthermore, additional insured riders typically only guarantee level premiums for a limited number of years. Rates can quickly multiply in cost after that period. Riders also have time limits on how long they will cover you for. This is sufficient if you only require coverage for your spouse for a limited time. A common example would be the need for financial coverage on a stay-at-home parent because, if they died, you would need to hire someone to take over child care.
If your spouse would still require life insurance if you died, make sure their additional insured rider has the option to convert to permanent coverage. Because not all insurers provide permanent policies, such as whole life insurance, you should double-check this before applying for a policy.
The coverage limits for an additional insured rider vary by insurer, but they typically have a minimum and maximum dollar amount (such as $50,000 to $500,000 of coverage). In some cases, the full death benefit for an additional insured can be as high as that of the primary insured, implying that your spouse has the same amount of coverage as you.
Child rider on life insurance
Assume you only need coverage for your child for a limited time, such as when you set up an emergency fund large enough to cover their funeral. In that case, the only way to obtain term life insurance for a minor is through a child rider.
A child life insurance rider typically costs less than $6 per thousand dollars of coverage, and even if you have five children, you only need one life insurance rider to cover all of them. You will not be charged an additional premium for each child.
If your child is between the ages of two weeks and 17 years old, you can typically purchase life insurance for them, with the maximum amount of coverage ranging from $10,000 to $25,000, depending on the insurer.
A child rider expires when your child reaches the age of 18 to 25, depending on the insurer. Almost every life insurance company, however, offers conversion to a whole life insurance policy with several times the coverage.
Joint life insurance
You can buy a joint life insurance policy with your spouse or anyone else who is financially connected to you, just like you can add an additional insured rider. While some insurers provide term or whole joint life insurance policies, the vast majority of joint policies are for universal life insurance. This is due to the fact that joint life insurance policies are typically designed to protect a couple or your children in the event of your death.
Joint life insurance policies can be structured as first-to-die or second-to-die policies. The difference is that the death benefit for first-to-die policies is paid when the first spouse dies. Second-to-die policies, on the other hand, pay out after both you and your partner have died. Joint life insurance policies are usually less expensive than buying separate permanent life insurance policies because:
- Underwriting both parties at the same time saves the insurer money.
- Because there is no payout until both people die, the insurer expects to collect premiums for a longer period of time with second-to-die life insurance policies.
Divorce is the most significant risk associated with joint life insurance policies. It may be unpleasant, but we recommend that any joint coverage you purchase include a divorce clause that is acceptable to you. Otherwise, you risk losing coverage that you have paid for.
First-to-die life insurance
First-to-die joint life insurance is a simple way to ensure that your family's standard of living is maintained if you or your spouse dies. The following are the most common reasons why you might want first-to-die life insurance:
- You have a dual-income household and could not afford the mortgage or other day-to-day expenses if both sources of income were not available.
- You have a young family and a stay-at-home spouse, and you would struggle to cover child care and other family services if your spouse died. While an additional insured rider can provide coverage for this scenario, you may require a joint life insurance policy if the maximum death benefit for a rider is insufficient.
Second-to-die life insurance
Second-to-die life insurance, also known as last-to-die or survivorship life insurance, is typically purchased to leave an inheritance to children or to cover estate taxes. Given their purpose, survivor life insurance policies can have extremely high death benefits, and you won't be restricted if you require a reasonable amount of coverage.
Assume you have a spouse and want to leave money to your heirs. In that case, a second-to-die joint life insurance policy will almost certainly be less expensive than purchasing individual policies.
When it comes to inheritable conditions, many couples have one person who is healthier than the other or has a cleaner family history. Because the insurer only expects to pay when the healthier spouse dies, your and your spouse's projected life expectancy is higher, and your premiums are lower.