Life insurance for families: Protecting your loved ones 101

Finding adequate life insurance coverage requires understanding the needs of those around you, from your children and significant other to your own parents.

Purchasing life insurance on your own life is an unselfish act. It means you’re helping to ensure the financial livelihood of your family or others in the event you pass away too soon.

But have you considered what you might need if one of the important people in your life dies? Will you have to replace a spouse’s income to maintain your standard of living? Do you have enough to cover the funeral expenses of other family members?

To be protected financially, you may also need life insurance for other members of your family.

Life insurance for spouses

If you’re married or have a life partner, each spouse should be covered by a life insurance policy.

Some people neglect the need for insurance because they have a spouse with a successful career. They assume that the spouse can live comfortably on their own.

But chances are your combined lifestyle is based on both of your incomes. If your’s is lost, what will happen to your significant other? Can he or she afford the mortgage on your house on one income? What about funeral and estate settlement costs?

Also, keep in mind that a widowed spouse may need significant time off work to grieve. Life insurance benefits can help a surviving spouse replace the lost income they incur while taking time off work.

A life insurance death benefit can also help your surviving spouse pay off existing debts, such as the mortgage, car payments, credit card debt, and student loans.

Typically, your debt becomes the responsibility of your estate following your death. And your estate will automatically pass to your surviving spouse.

Any loans in which there was a co-signer must be repaid by that individual. If you still have a mortgage, a joint owner or the person who inherits the house will be responsible for making the loan payments. If the house is sold, the mortgage balance will have to be repaid by the sale proceeds.

In community property states, all assets and liabilities acquired during a marriage are considered to be owned by both spouses. This is true even if the spouse did not co-own, co-sign, or hold joint account status. In these states, joint ownership is automatically presumed by law. Also in community property states, the surviving spouse is responsible for student loan debt if it was incurred during the marriage.

Community property states include:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

There are a number of ways to insure the life of a spouse. Many couples buy two individual life insurance policies, whether permanent or term life insurance. Another option is for one spouse to be the primary insured on a single policy and the other spouse to be added as a policy rider.

[ Related Read: Life Insurance for Spouses ]

Life insurance for new parents

If you don’t have life insurance by the time you have your first child, you definitely need coverage once you become a parent.

According to the United States Department of Agriculture, it costs over $233,000 to raise one child on average. This includes food, housing, transportation, health care, clothing, education, and other items.

If one or both parents pass away, the death benefit from a life insurance policy can cover their financial needs into adulthood.

It’s important not to underestimate how much a surviving child would need from a life insurance policy.

Basic living expenses like food and clothing will only increase as they get older. The amount of your life insurance should reflect this.

Not only that, but you may also want to insure your life insurance can help pay for college. To do that you need to factor in the likely increases in tuition costs.

[ Related Read: Life Insurance for New Parents ]

Life insurance for your parents

Typically, you can’t own a life insurance policy in which your parents are the insureds on the policy. This is only allowed if you can prove there’s an insurable interest, meaning you would suffer financially from your parents’ death.

To protect your finances in the event your parents die, you could ask them to apply for coverage if they don’t already have insurance. You can pay the premiums on the policy and be the named beneficiary, so long as you are not listed as the policy owner on the contract.

The main reason to ensure your parents have life insurance is to cover funeral expenses and estate settlement costs so you don’t have to.

If your parents or grandparents don’t have other financial needs for life insurance, they can get final expense insurance.

This is a type of permanent life insurance designed to provide funeral expenses and any final medical bills so family members do not have to pay for them.

This is a permanent type of life insurance policy, so it does not expire as long as you pay the premium. Final expense insurance typically does not require full underwriting.

[ Related Read: Life Insurance for My Parents ]

Life insurance for children

Most people don’t think about insuring the lives of their children. There is an extremely small chance of children dying. Plus, parents don’t typically need to worry about replacing income earned by a child if they did die unexpectedly.

However, it’s a good idea to have a small amount of coverage for your children just to cover funeral expenses. This way, in the unfortunate event you lose a child, you can pay for their funeral without having to use your savings or go into debt.

Life insurance coverage on children typically costs a few dollars a month. That’s because there is little risk of children dying, plus you typically only buy a small amount of coverage on your children.

The two best ways to buy life insurance for children is to add a child rider on your own term life insurance policy or include your children on a group policy. In both cases, your child will not have to go through underwriting.

A child rider on your term policy will cover all of the children in your household. Plus, if you decide later on that a child requires their own policy, you can covert the rider into a child life insurance policy.

Many employer-sponsored group life insurance plans provide the option of buying coverage for children.

[ Related Read: Life Insurance for Children ]


Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

Published January 29, 2021

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