Life insurance is a safety net that takes sure that your loved ones are financially secure, after your sudden death. Life insurance is usually bought by the primary breadwinner of the family. However, it is so much better to cover the whole family, instead. You can care for your complete family by buying whole family life insurance.
With increasing awareness about the utilities of life insurance, people now prefer buying family life insurance for young families. Basically, this way the head of the family and his spouse, and children get insured. In case of the sudden death of any of these, the other family members are ready to face the financial hardships that might come across.
The way experts suggest you to go about buying family life insurance for your whole family is this:
- Buy a permanent whole life insurance policy for the head of family.
- Buy a term life policy and renew it after a term for wife and child.
- Buy a rider for wife and child, with your own whole life insurance policy.
- What is family life insurance?
- How do you find the best life insurance for your family?
- How does life insurance for the whole family work?
- Can I buy life insurance for one of my family members?
- What does a family life insurance plan cover?
- What are the benefits of family life insurance?
- What are the drawbacks of family life insurance?
- Which family life insurance companies are the best?
What is family life insurance?
Family life insurance simply put, is the whole life policy for the primary wage earner of the family. Plus, the rider for wife and his children, which is cost-effective. Either policyholder can go for a rider addition or he can buy term life less costly options for his spouse and kids.
With the head of the family insured with a permanent policy, his dependents will get full death benefit payout after his death. They can use this tax deferred cash for:
- Arranging funeral for head of family.
- For paying off credit card or mortgage loans.
- To substitute for his monthly income for 3-4 months.
- For children college expenses, for a bit.
If God forbid the child dies, his term policy or rider can cater for his funeral ceremony. Similarly, if the wife dies, meals, house care and child raising for a bit, are arranged by her term policy.
At least the time of grievances due to their death, is paid for financially. After a couple of months, obviously term insurance, or husband’s whole life insurance payout is also insufficient.
How do you find the best life insurance for your family?
Firstly, understand clearly that there are 2 most popular life insurance policies:
Term Life Insurance Policy
It is for a time period like 10-30 years, Protective and Banner Life offer the terms ranging from 5-40 years’ coverage too. The term life has cheap premiums and if the policyholder dies in term, his wife and kids get the full death benefit payout.
Whole Life Insurance Policy
It offers fixed premiums, costlier premiums, no expiry date, huge death benefit payout to last years, cash value component to use for emergencies. By all means, whole life or any permanent life insurance policy is always 100% better for the head of the family.
Now the formula for calculating how much life insurance you need for your family is simple! Just multiply your annual salary to 5. This is the coverage you should look for. Other factors which affect this coverage are:
- Number of dependents.
- Total family income (your spouse might be working too)
- Outstanding debts (mortgage, credit card)
How does life insurance for the whole family work?
How can you take life insurance out on your whole family? Simple, it is similar to normal life insurance; you buy a permanent life insurance for yourself. But you buy term life, or extended add-ons for your wife and child with riders. If you buy term life, you specify the time and coverage. If you buy a whole life, you specify the coverage.
The death benefit payout and cash value component are your financial accounts to go to, for your beneficiaries after your death. You can borrow loans against cash value during your own life. Cash value accounts only come with a permanent life policy, not with a term life.
After your death, the payout goes to your named beneficiaries like your wife and kids. It is important to keep updating names of the beneficiaries too, if they’ve changed.
Can I buy life insurance for one of my family members?
Yes, you can buy life insurance for any family member, be it your parents, grandparents or children. For your parents, however, you have to prove “insurable interest”. It is the fact that you can prove with documentation that if your parents pass away, it will be catastrophic financially for you. You have to show documents to prove that you have been financially supporting your parents too.
As for children; it is better to insure them on their birth. Many reputable insurance agencies offer child insurance and it is way cheaper compared to later on in life. For kids, teenagers or young people, premiums are very pocket-friendly.
If God forbid, any of your insured child dies, you’re in a trauma but at least his funeral ceremony is arranged by his burial insurance. You will deal with only the tragedy, and would not have to undergo the urgent financial stress of arranging his funeral.
What does a family life insurance plan cover?
It can cover the costs of:
- Child school or college fees.
- Income Replacement after death of primary breadwinner.
- Burial and funeral costs for any family member.
- Mortgage and credit card Debts that are pending.
While buying the term life one should consider its benefits of being affordable, for a term of 10-30 years. Whereas, when you buy a whole life you can think of the cash value account, its tax deferred cash can be used for any medical emergency, cruise vacation or house renovation.
What are the benefits of family life insurance?
Like mentioned before in this blog, it includes:
- The tax exempted death benefit payout.
- Cash value account loans.
- Debts repayment.
- House improvement.
- Family vacation.
- Burial and funeral expenses.
- College funds.
- Income replacement.
If you choose a comprehensive and expensive Universal life or Whole life policy, it offers more coverage.
What are the drawbacks of family life insurance?
- If you have a large immediate family, it can cost you a lot. Compare the benefits with the coverage costs to choose what to do.
- If you do not select the right fit after thorough research, you might regret your decision later in life.
- After the death of any policyholder/ breadwinner, it might be practically difficult to keep up the premiums every month. It might cause you emotional and financial trauma. Be prepared!
Which family life insurance companies are the best?
Pacific Life best for $100,000 Term Life.
Principal best for High Issue Age.
Protective best for Long Level Term Length.
Symetra best for Term Life Insurance Rates.
Transamerica Best for Buyers in Their 50s.