What is family life insurance?
Updated 7:19 a.m. UTC Feb. 22, 2024
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Key points
- Family life insurance isn’t a single product sold by insurance companies.
- In some cases, it refers to the ability to purchase additional coverage for family members.
- In others, it’s a way of conveying they have something for every family member.
Family life insurance is a broad phrase to describe the various life insurance policies that can cover your entire family. Contrary to what the name implies, it doesn’t actually describe a specific insurance product.
Ethos
How does family life insurance work?
Family life insurance can come in several different forms. Some insurance companies offer family life insurance that’s simply a suite of policies designed to cover your entire family. That suite of products might include large term or whole life insurance policies for parents with smaller policies designed to cover only funeral expenses for other family members.
In other cases, family life insurance is created using riders on a primary policy. Some insurers offer a term rider that allows you to add life insurance for your spouse to your existing term or whole life insurance policy. Many also offer a children’s term rider, which provides a small amount of coverage for your children, often terminating when they reach a certain age.
So what’s the benefit of buying these riders rather than simply purchasing separate policies for each member of your family? In some cases, you may be able to avoid additional underwriting, meaning you can add your spouse and children regardless of their health status. Additionally, some insurers offer the option to convert these riders into their own separate policies at a later point.
Types of family life insurance
Let’s dive a bit further into the different types of family life insurance available.
Term life insurance
Term life insurance is the most common type. It provides coverage for a set period of time, say 10, 20 or 30 years, at a locked in rate. If you have a term life insurance policy and die within the term, your beneficiaries will receive a death benefit, or the life insurance payout. In most cases, you can renew the policy to extend coverage, but you’ll pay a higher rate.
Term life insurance is commonly the most affordable life insurance option, and the younger you are the cheaper the policy will cost. This makes it a popular choice for young families on a budget. Many life insurance companies also offer children’s riders, or policy add-ons, that allow you to customize your policy to extend coverage to your children.
Permanent life insurance
Permanent life insurance lasts your entire life, as long as you continue to pay the premiums.
In addition to a death benefit for your beneficiaries, permanent life insurance also has a cash value component. A portion of your premiums go into an account that can grow over time, and you can tap into the cash value while you’re alive.
There are several different types of permanent life insurance, including whole life insurance, universal life, and variable life insurance. The type of policy you choose will determine how your cash value will grow. In some cases, you can end up losing money depending on the chosen investment, but some policies offer guaranteed growth.
Permanent life insurance policies can be an attractive choice because they never expire. They can also serve as an investment vehicle, though if you have an investment goal, it may be wise to consider other types of investment accounts and speak to a financial advisor who can help you decide what option is best.
Many families choose to create what is essentially a family life insurance plan by purchasing permanent life insurance for each member of their family. The benefit of this route is that, like term life insurance, whole life insurance allows you to lock in your policy premiums. So if you purchase a whole life policy for your young child, it will come at a very low rate that your child can enjoy their entire life.
That being said, the whole life policy you purchase for your child is likely to have a relatively low death benefit and provide lower investment returns than most alternatives.
Life insurance riders
A rider is an optional coverage that you can add to an existing policy. When you purchase family life insurance using riders, you aren’t actually buying separate policies. Instead, you’re buying coverage for one member of the family and then using riders to provide coverage for the rest.
A life insurance rider is a popular way to purchase life insurance coverage for children since they rarely need their own standalone policy. Depending on your insurance company, you may be able to purchase a rider for just a few dollars per month.
Should you get family life insurance?
You should purchase family life insurance for anyone in your family whose death would result in a financial burden. The most obvious example of this is purchasing a life insurance policy for the primary earner in the household since their death would lead to a loss of income.
However, even stay-at-home caretakers should also consider a life insurance policy. While they may not earn an income, they play an important role in the family and it could be a huge financial burden filling their shoes. For example, if one spouse stays home with the children and that spouse passes away, the other spouse would likely have to pay for childcare expenses.
There’s a bit more uncertainty when answering the question of whether you need life insurance for your children. If you wouldn’t be able to afford the cost of a funeral out of pocket, it may be worth purchasing a rider or small-term policy. However, anything larger than that is likely unnecessary for children.
“Children are generally very unlikely to die before their parents,” Tamarkin says. “And while some insurers market whole life child policies as a way to establish a financial asset for the child to receive when they grow up or even as a way to save for college, if you do the math you are likely to find that it is a vastly better deal to open a custodial investment account or a 529 college savings plan for the child.”
While Tamarkin doesn’t generally recommend family life insurance—especially coverage for children—he does provide one notable exception: “If your loved one is facing a heightened risk of dying and the add-on feature doesn’t require any additional underwriting or your attestation as to the health of your loved one,” that’s the time to buy.
One of the major benefits of a family life insurance policy is you can find a policy for your child that can automatically convert to a permanent life insurance policy. If you have a child with preexisting conditions who may struggle to qualify for coverage later on, family life insurance may be worth considering.
Family life insurance definition FAQs
You should purchase life insurance for anyone in your family whose death would create a financial burden, either because of the loss of income or the expenses created by their death.
The cost of family life insurance depends on many factors, including whether you choose term or permanent life insurance, the number of people added to your policy and the amount of coverage you buy.
Family life insurance would be used to cover any financial burden created by a family member’s death. In the case of a parent or another provider, family life insurance could help replace their income and cover household expenses. For a child, family life insurance could help to cover funeral costs and other end-of-life expenses.
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