Life Insurance For Your Family And Children

Valuepenguin | 02/13/2020

Whether you’re married, have children with your spouse or are a single parent, there are a few different ways to purchase life insurance for your family. The primary decision you have to make is whether you want your family covered under one life insurance policy or multiple policies. You can often save money by purchasing a joint life insurance policy for yourself and your spouse, but this is often only available as permanent coverage. For a child’s life insurance, the reason you want coverage typically determines whether they should have their own policy or be added-on to yours.

Why Purchase Life Insurance for Children?

It’s never required for your children to have life insurance but parents or grandparents will often purchase coverage in order to:

  • Cover costs associated with the child passing away
  • Ensure insurability of the child later in life
  • Give the child the gift of an investment with a fixed rate of growth

End-of-Life Costs

Though people under the age of 25 only accounted for 2.3% of deaths in 2015, the cost to your family when a child passes away can be significant. The average cost of a funeral is often around $10,000, and that bill isn’t reduced by the age of the deceased. And, while children don’t typically have debt when they pass away, families will often have costs associated with medical expenses, counseling and taking time away from work to grieve. If you’re concerned about the costs of your children passing away, we would recommend you get a child rider added to your own life insurance policy for an emergency fund.

Guaranteed Insurability

You will likely have trouble insuring a child if they already have medical conditions. If you’re concerned that they will be diagnosed with an illness later in life that makes it difficult for them to get life insurance, a children's policy can help ensure your kid will have coverage. For example, your family may have a history of diabetes or dying early due to a stroke. By buying a child whole life insurance policy with a guaranteed insurability rider, you can make sure that your kid not only has coverage now but is able to increase their death benefit later.

We've found that insurers have increased the set of pre-existing conditions that you can get coverage with, so your child is unlikely to actually have trouble getting a policy as an adult due to medical issues. One of the few reasons that your child would be uninsurable as an adult would be if they developed a substance abuse problem. If your family has a history of issues with drugs or alcohol, and you’re concerned about this impacting your kids as well, child life insurance may be a good consideration.

Cash Value

With whole life insurance, the guaranteed annual rate of return is lower than you might get with alternative investments, but you may want your child to have a death benefit as well. If you want to give your kid coverage as well as money they can use in the future, a child whole life insurance policy will accomplish both. Since it has decades to grow, a kid’s cash value can grow significantly by the time they would want to use it to pay for their education or another expense. To maximize the policy’s cash value later on, you’ll want to:

  • Pay premiums in a single lump sum or over a shortened period of time, such as 10 years
  • Buy coverage through a mutual insurance company that pays dividends, as these can be used to add coverage and increase the cash value

On the other hand, if you just want to leave money to your child and aren’t concerned about having coverage in case they pass away, we would recommend investing your money in an alternative product.

Child Life Insurance

Child life insurance is typically sold as a whole life insurance policy with a death benefit under $100,000. Since the child is less likely to pass away than an adult, premiums tend to be quite low and can be locked-in for the child’s lifetime.

As with adult policies, child whole life insurance policies have a cash value component. When you pay premiums, a portion of the money goes towards the policy’s cash value, which grows according to a rate specified in the policy. The cash value is essentially the amount of money you would receive if you decided to give up the policy to the insurer, but it can also be borrowed against by the child once it’s large enough. Policy loans can be used for anything, from paying for a car to covering medical expenses, and typically have lower interest rates than you could qualify for with a personal loan.

You can typically purchase coverage if the child is at least two to three weeks old and just need to answer some health questions instead of having your kid undergo a medical exam. However, if your kid already has a medical condition, you may have trouble getting child life insurance or have to pay fairly high premiums for the amount of coverage.

Family Life Insurance with a Single Policy

If you’re looking to have your spouse and children covered under a single policy, the most common way to do so is using riders. Riders are essentially add-ons to your life insurance policy that increase your premiums but can tailor the coverage to your needs.

Since each insurer has a different set of riders available per life insurance policy, you’ll want to check that they offer family life insurance on the policy you choose. Family life insurance riders may be referred to by different names, but you’ll typically see them referred to as “additional insured” and “child” riders. These riders are regularly available on term and whole life insurance policies, so you shouldn’t be restricted from purchasing the coverage of your choice.

Additional Insured Rider on a Life Insurance Policy

An additional insured rider can actually be used to add life insurance coverage for your spouse, a business partner or nearly anyone that’s tied to you financially. Just note that, while it may seem simpler, you may be able to get your husband or wife their own individual term life insurance policy at a lower cost. And, even if that’s not the case initially, additional insured riders usually only guarantee level premiums for a certain number of years. After that period, rates can multiply in cost rapidly.

Additional insured riders also tend to come with limits on the period of coverage. This might be the length of your policy, if you have term life insurance, or a set number of years if you have a permanent life insurance policy. This is fine if you just need coverage on your spouse for a set period of time. A common example would be needing financial coverage on a stay-at-home parent as, if they pass away, you would need to hire to take over child care.

However, if your spouse would still need life insurance if you passed away, you should confirm that their additional insured rider has the option to convert to permanent coverage. Not all insurers offer permanent policies, such as whole life insurance, so this is something you’ll want to check before applying for your policy.

The coverage limits for an additional insured rider vary by insurer, but will typically have a minimum and maximum dollar amount (such as $50,000 to $500,000 of coverage). In some cases, the maximum death benefit for an additional insured can be as high as those of the primary insured, meaning your spouse would have the same amount of coverage as you.

Child Rider on Life Insurance

If you only need coverage for your child for a particular period of time, such as while setting up an emergency fund large enough to cover their funeral, a child rider is the only way to get term life insurance for a minor. A child life insurance rider usually costs less than $6 per thousand dollars of coverage and, even if you’re a family of five, you will just need one life insurance rider to cover all your children. You won’t pay an additional premium per child.

You can typically purchase life insurance for your kids if they’re between two weeks old and 17 years old, with the maximum amount of coverage ranging from $10,000 to $25,000. A child rider expires when your kid becomes an adult, which is between the ages of 18 to 25, depending on the insurer. However, nearly every life insurance company offers the option of conversion to a whole life insurance policy with several times the amount of coverage.

Joint Life Insurance

Similar to adding an additional insured rider, you can purchase a joint life insurance policy with your spouse or anyone else that’s financially tied to you. While some insurers offer term or whole joint life insurance policies, most joint policies are for universal life insurance. This is because joint life insurance policies are typically intended to protect a couple or your children whenever you pass away. However, if you only need financial coverage for a particular period of time, you would probably be better served buying a term life insurance policy with an additional insured rider.

Joint life insurance policies can either be first-to-die or second-to-die in structure. The difference is that, for first-to-die policies, the death benefit is paid when the first spouse passes away. In contrast, second-to-die policies pay out after both you and your partner have died. Joint life insurance policies are typically a cheaper option than purchasing separate permanent life insurance policies since:

  • There are fewer costs to the insurer to underwrite both parties at once.
  • With second-to-die life insurance policies the insurer expects to collect premiums for a longer period of time on average, since there’s no payout until both people pass away.

The biggest risk with joint life insurance policies is divorce. It may be uncomfortable, but we recommend checking that any joint coverage you purchase has a divorce clause that would be acceptable to you. Otherwise, you may end up losing coverage that you’ve paid for.

First-To-Die Life Insurance

First-to-die joint life insurance is a simple solution to make sure that your family can maintain their standard of living if you or your spouse dies. The most common situations in which you might want first-to-die life insurance would be:

  • You have a dual-income household and wouldn’t be able to afford the mortgage or other day-to-day expenses without both sources of income.
  • You have a young family and stay-at-home spouse, and would have trouble covering child care and other family services your spouse provides if they passed away. While you can get coverage for this scenario through an additional insured rider, you may need a joint life insurance policy if the maximum death benefit for a rider isn’t large enough.

Second-To-Die Life Insurance

Second-to-die life insurance, also called last-to-die or survivorship life insurance, is usually purchased in order to leave children an inheritance or cover estate taxes they might face. Given their intent, survivor life insurance policies can have incredibly high death benefits and you won’t be limited if you need a fair amount of coverage.

If you want to leave money to your heirs and have a spouse, a second-to-die joint life insurance policy is likely to be significantly less expensive than purchasing individual policies. For many couples, one person is either healthier than the other or will have a cleaner family history when it comes to inheritable conditions. Since the insurer only expects to pay when the healthier spouse passes away, the projected life expectancy for you and your spouse together is higher and premiums are lower.

At Massey, Clark, Fischer we offer all these plans and more.  Please let us know how we can be of assistance to you so we can plan the family protections you desire.


Disclaimer: The above description provides a brief overview of the terms and phrases used within the insurance industry. These definitions are not applicable in all states or for all insurance and financial products. This is not an insurance contract. Other terms, conditions and exclusions apply. Please read your official policy for full details about coverages. These definitions do not alter or modify the terms of any insurance contract. If there is any conflict between these definitions and the provisions of the applicable insurance policy, the terms of the policy control.

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