Everyone has a role to play within a family and the death of any family member can cause not just emotional devastation but also significant financial loss. It is imperative to plan ahead and ensure that the people you love the most have the money they need to try to move on if you pass away. One of the best ways to do this is to purchase life insurance coverage for each family member.
Who Needs Life Insurance Coverage for Families?
Life insurance coverage should typically be purchased for every member of a family. A breadwinner spouse or parent will need life insurance coverage to replace his or her income after passing away. A stay-at-home spouse or parent will also need coverage because the services that are provided to the family have a very tangible value that will be lost if an untimely death occurs.
It even makes sense to have coverage for children to help shield your family from the financial burden of funeral expenses if your child gets sick and to provide financial assistance if a child suffers a terminal illness.
When any family member passes away, you do not want to add financial difficulties onto the emotional pain of the loss. Buying life insurance coverage for families makes sense to care for the people you love the most.
Do You Need Separate Policies for Each Family Member?
In general, a separate policy will be purchased to provide cover for each adult family member. Some insurance companies provide free cover for children attached to an adult’s policy; however his is not always the case and you should find out from your insurance company whether this is an option for you.
It generally makes sense to purchase all policies from the same insurer for simplicities sake but this is not always the case. If there are large age differences or differences in health status between family members, it can make sense to shop around with different providers to see how to get the best deal for coverage of each member of the family.
Why Buy Term Life Insurance for Children?
When purchasing life insurance for the family, you may question whether your children really need coverage. Buying term life insurance for your children while they are young will make their costs lower if they maintain the insurance going into adulthood. If the worst happens, the policy will also ensure that there is money to cover the costs of your child’s terminal illness as well as funeral expenses. Life insurance for children is generally relatively inexpensive so the small investment you make is worth it for peace of mind.
What Kind of Life Insurance Should Families Have?
Term life insurance is the best choice for most families. Term life insurance provides a lump sum payment to beneficiaries in the event of your death. You can also opt to have the policy provide a lump sum payment to you if you have been diagnosed with a terminal illness and you have been given less than one year to live.
Term life cover will ensure that your family receives money to pay off debts and meet expenses after you have passed away. Because you can claim the policy when diagnosed with a terminal illness, a term policy also provides you with the peace of mind of knowing that there will be money available to pay large medical bills.
Other types of life insurance are available including income protection and funeral insurance. Income protection provides a regular monthly payment to someone who becomes unable to work as a result of an accident or a serious injury. Funeral insurance provides a death benefit to pay for funeral expenses upon your death. Since a funeral can cost thousands of dollars, this type of policy helps to shield your family from having to tap into their savings to pay for the costs of your burial if you pass away.
What Does Family Life Insurance Cover?
Family life insurance covers different things depending upon what kind of policy you have purchased. If you bought term life insurance, your loved ones will receive a death benefit in a lump sum payment after you have passed away. Most plans have some limited exclusions, such as not paying out the death benefit if a suicide occurs within the first 13 months. However, outside of these exclusions, there is a guarantee that your family members will have the money they need after you are gone. Your family can use this money for anything they like including:
- Mortgage payoff
- Educational expenses
- Income replacement
- Living expenses
- Tax payments
- Personal debts like care loans
- Childcare for children
- Funeral costs
- Financial planning expenses
Term life insurance for a family member also provides advanced payment for terminal illnesses. This money can be used to pay for anything you need as you are coping with a serious medical issue.
How Much Family Life Insurance Do you Need?
You should consider the debts that your family has, as well as the financial obligations that your loved ones have. Most people want to provide enough life insurance coverage to pay off a home mortgage and other outstanding debt balances. You want to ensure that the money from the death benefit can be invested to provide ongoing income to replace the money that you are no longer contributing to your family.
You should also think about whether any family members have special needs, such as a disability or a desire to pursue expensive higher education. The amount of insurance you need is going to be based on all of these different factors, and you may wish to talk to a financial planner or life insurance advisor about how to calculate the correct amount of coverage.
When Should You Buy Family Life Insurance?
For most families, it makes sense to buy family life insurance cover while everyone is young and healthy. Premiums can be lower if you are younger and you will not need to worry about any whether you can pass any required medical exams that are necessary to get coverage.
Why is Additional Cover Needed if You Have Life Insurance in your Superannuation Fund?
Many people have some life insurance cover in their superannuation fund. Unfortunately, this insurance rarely provides enough money, especially for young families. You want to make sure your loved ones are taken care of and not worrying about money after you have passed away, so it is up to you to get the coverage that you need. Shop today for the right policy for your family.
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