Life insurance can be complicated, with so many words thrown about like “Riders” and “term” and “variable”. If you have a family there are even more things with which to concern yourself, like coverage for kids and a spouse. Thankfully, once you understand the basics, it becomes much easier to decide on a family life insurance plan that is best for you and your loved ones.
Let’s start with one of the most common questions we get when it comes to life insurance:
What Are the Different Types of Life Insurance?
When you set out to get life insurance, you have two main types: Term and Permanent. Within those two categories are sub-categories.
Term life insurance
Term life insurance is designed for people with finite financial needs, basically, anyone who wants coverage for specific financial needs has presently, which you won’t have forever. This includes things like a mortgage or other debt. You take this policy out in a “term” which is a specific length of time. After that length of time, the policy expires, and you no longer have coverage. So, if you take out a ten-year term to cover the remaining ten years you have on a mortgage, and you outlive that term, you will have paid into it for ten years and in the end, you won’t have coverage anymore.
1. Renewable term life insurance
Renewable term life insurance is a policy which allows you to renew at the expiration. So, if you take out a ten-year term to cover your current mortgage, and you outlive it, you can renew the coverage thereafter. Typically, you renew annually.
2. Convertible term life insurance
A convertible term life insurance policy is one that allows you to convert to a permanent policy once it expires. With this, you might want the finite financial protection for loved ones, but then you might want a new, permanent policy for yourself.
3. Decreasing term life insurance
A decreasing term life insurance policy decreases in coverage over the course of the term. This is ideal for people who want a larger term policy but will have reduced financial needs as the years go on. For example: you might need $250,000 of coverage for your mortgage, and $50,000 for your car debt, and another $100,000 for your children. But then, as you get older, the cars are paid off, the mortgage is down to just $150,000 and the children are out of the house. In the end, you now need only $150,000 in coverage. A decreasing plan gives you just that.
4. Increasing term life insurance
This policy is the opposite of the option above. In this instance, you might know that your financial needs are going to increase—maybe because your health is declining, and you will have more medical bills, or maybe because you want to start a family and will soon have children you need to protect, or maybe you have a divorce now and required alimony and child care debt. In any case, this product lets you increase your coverage with time.
Permanent life insurance
Permanent life insurance is a form of permanent coverage, coverage that lasts for the rest of your life.
1. Whole life insurance
Whole life insurance policies have fixed premiums, which means they never change. There is also a cash value that accumulates money with time. You are able to take a loan against that cash value if you want. There are also many ways to pay your premiums like single payment policies where you pay all of it up front or fixed year payments where you pay for ten years. Your beneficiaries review the face value only, not the cash value when you pass away.
2. Universal life insurance
Universal life insurance gives you more flexibility with premiums and death benefits. You have to maintain your minimum premium payment over the course of a year, so if you make extra cash value one month you can use it to pay a significant part of your annual premium, and then skip payments a few months in between before paying the remainder. There is a cash value component and you can change the coverage as your financial needs change.
3. Variable life insurance
Variable coverage gives you the change to put that cash value you earn into an investment account which the insurance company manages. This means you can earn more money potentially which you can put toward your premiums or tack onto the total death benefit your family receives. Of course, if the investments perform poorly, you could lose that money too.
Child Life Insurance – Whole vs. Term
Child term life insurance
Child life insurance policies are the same as the term policies above, but they are taken out on your child. You can typically take them out as a facet of your existing plan, which means it is much cheaper and gives you money in case your children pass away unexpectedly. Theoretically, this money could help offset burial or funeral costs.
Child whole life or Child universal life insurance
These are permanent plans that many people think are great because of the cash value they earn. However, if you get a policy for your child, they will not be earning cash value adequately enough to warrant the costs of the coverage until they are well into adulthood. That money might be better invested elsewhere.
Pros and Cons of Term Life Insurance
- You can choose a set amount of coverage like 10 years, 20 years, or 30 years based upon your financial needs. This means picking a length of time that coincides with your financial obligations
- You can choose small to large coverage amounts, with smaller premiums
- The premiums are much cheaper than permanent policies
- When it expires, you have no more coverage. You will be older, and your health might have changed which means getting a new policy will cost you more
- You lose all the money you paid into the plan if you outlive it, unless you purchase a return of Premium Term Policy
Pros and Cons of Permanent Life Insurance
- You can get lifetime coverage without ever needing to get another policy
- Your policy cannot change so long as premiums are being paid, and this means no matter what changes to your health or age take place, you still get a death benefit
- You can access the cash value that accumulates with time and spends it on anything you choose
- Premiums will be higher than term policies
- These policies may not be necessary for most people
Frequently Asked Questions About Family Life Insurance
Should you buy life insurance for your spouse?
If you want life insurance protection for your spouse, it will be less expensive for you to simply find a policy that has the spousal rider and allows two people to be covered under the same plan.
Should you buy life insurance for your kids?
Taking out life insurance for kids as a new and individual plan is not always the best option in and of itself because it will typically expire when they turn 18. It is financially better to take out a policy for yourself with enough coverage to provide for your kids, and/or to find a policy with child riders where you can add coverage for your children for a nominal annual fee. You are likely the one who has financial obligations and on whom others are dependent, not your children.
Should you buy life insurance for yourself?
You should buy life insurance if you have the need for it. Needs might include having debt, having family members dependent upon you, knowing you will need final expense coverage, needing a way to equally provide inheritances for your children or wanting to provide money to offset estate taxes.
How to choose the best life insurance for your family?
When you set out to choose a life insurance policy for your family, it is important to do the following:
1. Gauge your Needs
This means figuring out just how much coverage you will want, what debt you have, and what you want your policy to do for you. For example: Do you want your policy to provide your spouse with a death benefit in the event that you pass away first, a death benefit that is enough to cover your burial costs? Do you want the same, but with enough coverage to give them money for the debts you leave behind and child care? Do you, instead, want to give them enough money to permanently replace your lost income? If so, how much do you make and how much coverage is enough?
2. Know your Policy
Get to know the fine print in your policy. The last thing you want to buy into a binding agreement only to realize the coverage you wanted for your children cannot be converted into another policy once they turn 18, or the plan you got will require more medical exams than you thought.
3. Checking Settlement Ratio
The settlement ratio will tell you how likely a company is to settle your death benefit when you pass away, and how quickly they do it. You do not want a company with a lot of fine print that makes your beneficiaries jump through hoops for years before paying out.
4. Company’s Reputation
Not all companies are created equal. Some have been around much longer than others, but there are many considerations you want to weigh. Their reputation, their customer service, their riders, their long-term costs versus short-term costs, their financial standing, and more.
5. Talk to a Professional
The best way to make sure you are getting the coverage you need for your family is to talk to a professional. Third-party brokers can give you seasoned, unbiased advice based on your situation. Remember: Every situation is different and that is why talking things over with a professional will reveal what options you have specifically, not generically just based on your age or gender.
Who has the best life insurance policy for families?
The “best” life insurance policy is going to be based on your needs. If you are a smoker, if you have a medical condition, if you want support for your spouse and/or your kids, you will find that companies that offer all of these are going to be very similar. The key differences exist in their underwriting.
For example: State Farm is one of the best companies for life insurance policies for older, male smokers. If you are not an older, male smoker, then another company might be better suited to your needs.
Can you take out a life insurance policy on someone without their knowledge?
No. In order to take out a life insurance policy, the individual who is to be covered has to give their consent and more importantly, they have to undergo a medical exam.
What is family term life insurance?
Family term life insurance is offered by a few companies like New York Life and State Farm and functions as coverage for one customer, their spouse, and their children. You can take out a single policy but set up limited coverage for the other members of the family.
Finding the Best Life Insurance for Your Family
When it comes to finding the best life insurance policy for your family, there is no amount of research that ever seems to be enough.
With so many life insurance companies, policies, and rates, it is essential that you work with an independent life insurance agent who works with dozens of the best life insurance companies for families in order to make sure that you are comparing as many policies as possible.
Our agents are ready to help you understand your policy options in order to make the best decision for you and your family. Give us a call today to speak with one of our agents, or get started using our quick and easy online life insurance quote tool below.
Spectrum Insurance Group is made up of life insurance agents who are licensed in all 50 states and the District of Columbia. Spectrum Insurance Group has helped 1000’s of consumers purchase life insurance online & over the phone.
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