Cake values integrity and transparency. We follow a strict editorial process to provide you with the best content possible. We also may earn commission from purchases made through affiliate links. As an Amazon Associate, we earn from qualifying purchases. Learn more in our affiliate disclosure.
If you ask a life insurance agent about buying life insurance for your family of four (you, your spouse, and two children), the chances are very good that they’ll try to sell you four separate life insurance policies (one for each family member). That’s not necessarily a bad thing, nor is it malpractice on the part of the agent. Understanding life insurance policies for families can be tricky.
Jump ahead to these sections:
- What Is a Life Insurance Policy or Plan for a Family?
- What Does a Life Insurance Policy or Plan for a Family Include?
- What Are the Different Types of Life Insurance Plans or Policies for Families?
- How Much Does a Life Insurance Policy for a Family Cost?
- How Much Life Insurance Coverage Should You Purchase?
However, many people aren’t aware (including many life insurance agents) that several life insurance companies sell a type of life insurance policy (“family life insurance policy”) that covers the entire family, eliminating the need for each family member to have their own policy.
Before you buy a family life insurance policy, let’s look at how these policies work, what they cost, what they include, and what your alternatives are when buying life insurance policies for a family. Family life insurance policies come in many shapes and sizes, and you want to feel confident in your choice.
What Is a Life Insurance Policy or Plan for a Family?
To begin, a life insurance policy or plan for a family provides for the financial needs of surviving family members when one family member passes away. Like all life insurance policies, it is a contract with a life insurance company that states they will pay out an agreed upon death benefit to a beneficiary(s) named in the policy.
Policy details and coverage will vary by life insurance company, but family life insurance typically is a combination of whole life insurance and term life insurance. It is customizable and can be formatted in any way that meets your family’s needs.
For example, while one family may prefer to have whole life insurance policies covering both spouses and term life insurance for the children, another family may prefer term life policies for all family members.
Many families buy family life insurance plans in case the primary income earner passes away, but it’s also important to have life insurance for a supporting spouse, regardless of whether or not they work. The death benefit can help pay for childcare, final expenses, and other types of financial support the surviving family members may need.
Family life insurance can also help pay for:
- Family living needs like groceries and clothing
- Mortgage or rent payments
- Utility payments
- Car loan or lease payments
- Medical expenses or long-term care
- College tuition and fees
When buying a family life insurance policy, you’ll need to consider what expenses will arise based on which family member were to die unexpectedly, and then build your coverage amounts around protecting the survivors.
What Does a Life Insurance Policy or Plan for a Family Include?
A family life insurance policy typically includes coverage for both spouses and their children. The type of insurance selected can be mixed or matched, and there are usually two types to choose from: whole life insurance and term life insurance. Let’s look briefly at each.
Whole life insurance
To begin, whole life insurance is a type of “permanent life insurance,” much like universal life insurance. However, several qualities of whole life make it a unique kind of permanent life insurance.
First, whole life insurance builds cash value. Part of every dollar you pay in premiums is deposited into the cash value component of a whole life policy. The cash value is credited interest at a rate set by the life insurance company, and dividends paid by the insurer can also be added to the cash value, depending upon the company's profitability in a given year.
Also, whole life insurance won’t expire. Unlike term life insurance, you can keep your whole life policy for your entire life, as long as you continue to pay your premiums.
Last, whole life premiums never increase. Regardless of how many birthdays you have or how the condition of your health changes, your premiums will always remain the same with a traditional whole life policy.
Term life insurance
On the other hand, term life insurance is the most affordable coverage you can buy because it offers protection for a predetermined period, such as 5,10, or 20 years. It only provides a death benefit to your beneficiary if you pass away during the policy’s term. Unlike whole life, term life doesn’t accumulate cash value.
Though term insurance is generally less expensive than other types of insurance, it does carry a built-in risk. The risk is that if you outlive the policy’s term, you may not be able to qualify for another life insurance policy if you’ve experienced any health complications.
Some term life insurance policies have a guaranteed insurability option that allows you to convert your term policy to a permanent type of life insurance that won’t expire before you die, regardless of your current medical condition.
Because of cost, many younger families will purchase term life insurance as the foundation of their family life insurance policy. The convertibility option with term life suits many of these families because it provides the parents with the security of knowing that their children can convert their term protection to a permanent type of life insurance down the road, regardless of any health conditions they may have developed.
What Are the Different Types of Life Insurance Plans or Policies for Families?
Besides buying a single life insurance policy that covers the entire family, other life insurance options are available for families to choose from. Let’s take a closer look at different types of policies in greater detail.
Joint life insurance
Joint life insurance (also known as “second-to-die” or “survivorship life”) often makes sense for couples that don’t have children. Joint life policies usually come in the form of permanent life insurance to provide a death benefit after both policyholders die. If only one spouse dies, no death benefit is paid to the surviving spouse, and they become fully responsible for the entire premium.
Because of this, joint life policies work best for couples who are financially independent and can cover their living expenses without the help of a life insurance policy payout. Premiums for joint life are based on the age and medical histories of both spouses. Therefore, a severe medical condition for one spouse can increase the cost of the entire policy. On the other hand, if both spouses are healthy, sharing a policy can lower the premiums.
First-to-die life insurance
Next, this is another type of joint life insurance in which a death benefit is paid to a surviving spouse upon the death of their spouse. Typically, these policies are whole life insurance policies and cost less than buying a separate policy for each spouse.
The drawback to first-to-die life insurance is that after the first spouse dies, the surviving spouse will no longer be covered because the policy terminates after the first death. This could be detrimental to a spouse who is no longer insurable because of their health or can’t afford a new policy because of their age or income.
Child life insurance
Nobody likes to think about the death of a child, but life insurance for children provides benefits above and beyond paying a death benefit for final expenses if they die at an early age.
Life insurance for children helps ensure that a child has protection in place as they mature into adulthood. If they have a convertible term life policy, they are guaranteed to have coverage as long as they live, even if they develop a health condition(s) that could keep them from qualifying for life insurance later in life.
Life insurance for parents and grandparents
While older family members may be limited in the amount and type of life insurance they can buy, they can typically purchase life insurance up to age 85 with most insurers, and even older with several others.
Final expense policies are popular with seniors. They’re small whole life policies with death benefits between $2,000 and $25,000.
Guaranteed issue life insurance
Guaranteed issue life insurance is an option for older family members that can’t medically qualify for a standard policy.
Guaranteed issue policies are the most expensive policies you can buy because the insurer assumes a large amount of risk by not asking any questions about the applicant’s health history on the application or requiring them to undergo a medical examination.
These policies have a “graded death benefit,” meaning that the policy’s beneficiary will only receive a partial payment of the death benefit if the insured dies during the policies’ first two years. The agent who sells you the policy can confirm how long it takes to get a life insurance payout.
Group life insurance
Also known as employer-sponsored life insurance, group life insurance is another way to insure family members. The employee is typically issued a policy up to an amount specified in the group policy they have with their employer (which generally is term life insurance). They can then add riders to cover their spouse and children
One drawback of group life insurance is the limited death benefit. Many group life policies only allow a face amount equal to $50,000 or a few times your annual salary, which may not be enough for your family. A life insurance agent or broker can advise you on how much life insurance you need.
Group life insurance is also not portable, meaning that if you stop working for your employer, you won’t be able to take your coverage with you. This can be of particular concern to someone who has a pre-existing health condition.
Individual police with family riders
Finally, many families choose to insure the life of one or both of the spouses and add riders to cover other family members. Life insurance riders can expand the coverage of your base policy by covering a specific person or need. However, not all life insurers offer the same riders, and availability can differ among states.
Three common types of life insurance riders are:
- Spouse term riders are valid for a set number of years but typically expire when the base term policy they’re attached to expires or when the spouse reaches a certain age. However, you may be able to convert your spouse rider to an individual policy before it expires.
- Child riders cover a set period of time and pay out if the child dies during that period. These riders typically cover children from 15 days old to 25 years old. At that point, the child may have the option to convert the rider to an individual life insurance policy.
- “Other insured” riders typically can cover anyone you have an insurable interest in, which means you would suffer financially if the person dies. This could be a parent, grandparent, spouse, or child.
Life insurance riders come with some risk because they’re typically canceled when the policyholder dies, which could leave them without insurance. It may be better to buy a separate policy to cover a family member instead of adding a rider
How Much Does a Life Insurance Policy for a Family Cost?
The cost of a family life insurance policy will vary by insurer and by several factors concerning the family members, including how many family members are on the policy, their ages, their health history, tobacco use, and more.
Let’s look at an example policy for a family with two parents and two children:
- Mother (35, female): 20-year coverage for $1,00,000 term life insurance at a monthly premium cost of $42.69.
- Father (35, male): 20-year coverage for $500,000 term life insurance at a monthly premium of $30.31.
- Children: $10,000 standard child rider coverage at a monthly premium of $4.70.
How Much Life Insurance Coverage Should You Purchase?
One quick way to decide how much life insurance you need is to multiply your income by ten or twelve (depending on who you ask and what you read). This is a fast and easy way to select a coverage amount, though it isn’t nearly the most accurate.
A more accurate method is to use an online life insurance calculator. Many insurance and finance-related websites have links to these calculators. They’re generally easy to use – you simply answer some questions about your finances and family situation, and the site will recommend a coverage amount for you.
Many people prefer to determine their coverage needs by working directly with a professional life insurance agent or other financial advisor. An experienced professional can walk you through many different scenarios and models that will accurately arrive at the proper amount of coverage for you and your family.
Is Family Life Insurance Right for Your Family?
The only way you’ll know if family life insurance is the best choice for your family is to compare it to the other types of policies described above.
It will take an investment of your time, but having the proper life insurance protection in place for your family is well worth it.
