Life Insurance for Your Family and Children
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Whether you are married, have children with your spouse or are a single parent, there are a few ways to purchase life insurance for your family.
Determining whether you want life insurance to cover expenses or to provide an inheritance is an important first step in figuring out which type of policy is best. Then, consider the different protections you might need for your spouse versus kids.
Why purchase life insurance for children?
It's never required to have life insurance for your children, but parents may purchase coverage to:
- Cover costs associated with the child passing away
- Guarantee insurability of the child later in life
- Gift the child an investment with a fixed rate of growth
For a child's life insurance, the reason you want coverage typically determines whether they should have their own policy or be added to yours.
If you are mostly worried about providing financial support for your children after your death, a joint life insurance policy for yourself and your spouse is usually the most affordable option.
End-of-life costs
Child mortality rates are relatively low, according to the Centers for Disease Control and Prevention, but the cost to your family if a child does pass away can be high. The funeral's average price is often around $8,000, and the deceased's age doesn't reduce that bill.
And, while children don't typically have debt when they die, families may have costs associated with the child's medical expenses, as well as counseling and taking time away from work to grieve. If you're concerned about the cost of a child passing away, we would recommend you get a child rider added to your life insurance policy for an emergency fund.
Guaranteed insurability
If your family has a history of conditions, like stroke or heart disease, that could make it more difficult for your child to get life insurance later in life, a children's policy may help ensure your kid will have coverage.
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 can also increase their death benefit later.
We've found that insurers have increased the set of preexisting conditions you can get covered. That makes it less likely your child would have trouble getting a policy as an adult due to medical issues and not as necessary to invest in a policy with an insurability rider now.
One of the few reasons that your child would be uninsurable as an adult would be if they developed a substance abuse problem.
If you're concerned that your kids may be impacted by a family history of issues with drugs or alcohol, a whole life child life insurance policy may be a reasonable consideration.
Cash value
The guaranteed annual rate of return for whole life insurance is lower than you might get with other 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, the cash value can increase significantly by the time your child would want to use it to pay for their education or another expense. To maximize the policy's future cash value, you'll want to:
- Pay premiums in a single lump sum or over a shortened period, 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 if 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. Because the child is less likely to pass away than an adult, premiums tend to be relatively 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 toward the policy's cash value, 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 give up the insurance policy, but it can also be borrowed against by the child once the cash value is 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 a personal loan.
You can usually purchase coverage if your child is at least two to three weeks old. You'll just need to answer some health questions instead of having them undergo a medical exam. However, if your kid already has a medical condition, you may have trouble getting child life insurance or may 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 serious medical care or had any other chronic medical condition within the past three years? |
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 by using riders. Riders are essentially add-ons to your life insurance policy that increase your premiums but tailor your coverage.
Each insurer has a different set of riders available, depending on the insurance policy you purchase.
Family life insurance riders may be referred to by different names, but you'll typically see them referred to as "additional insured" and "child". These riders are regularly available on term and whole life insurance policies, so you shouldn't be restricted from purchasing your choice of coverage.
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 nearly anyone who's tied to you financially.
While it may seem straightforward to add a rider, you might be able to get your husband or wife their own individual term life insurance policy at a lower cost.
Also, additional insured riders usually only guarantee level premiums for a certain number of years. After that period, rates can increase in cost rapidly. Riders also come with limits on the length of coverage. This is fine if you just need coverage for your spouse for a set period. A typical example would be needing financial coverage for a stay-at-home parent, because you would need to hire someone to take over child care if they pass away.
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.
An additional insured rider's coverage limits 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 full death benefit for an additional insured can be as high as that of the primary insured, meaning your spouse would have the same amount of coverage as you.
Child rider on a life insurance policy
Suppose you only need coverage for your child for a particular period, such as setting up an emergency fund large enough to cover their funeral. In that case, 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 $1,000 of coverage and, even if you're a family of five, you will need only one life insurance rider to cover all of 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 and 17 years old, with the maximum amount of coverage ranging from $10,000 to $25,000, depending on the insurer.
A child rider expires when your kid becomes an adult, which is defined as age 18 to 25, depending on the insurer. However, nearly every life insurance company offers conversion to a whole life insurance policy with several times the amount of coverage.
Joint life insurance
Like adding an additional insured rider, you can purchase a joint life insurance policy with your spouse or anyone else who's financially tied to you. While some insurers offer joint term or whole life insurance policies, most joint policies are for universal life insurance. This is because joint life insurance policies are typically intended to protect a spouse or your children when you pass away.
Joint life insurance policies can be structured one of two ways: With 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. Whichever you choose, joint life insurance policies are typically a cheaper option than purchasing separate permanent life insurance policies, because:
- 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, on average, since there's no payout until both people pass away.
The most significant 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, even though you've already paid into it.
First-to-die life insurance
First-to-die joint life insurance is a simple solution to ensure 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 with a stay-at-home spouse and would have trouble covering child care and other family services if your spouse passed away. You can get coverage for this scenario through an additional insured rider, but you may need a joint life insurance policy if the maximum death benefit for the 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 to leave children an inheritance or to 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.
Suppose you have a spouse and want to leave money to your heirs. In that case, 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 healthier than the other or has 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 lower.
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