Life Insurance for Families

 

Life Insurance for Families

Life insurance is one of the best ways to ensure your family’s financial security. The idea behind life insurance is simple: if you were to pass away, the life insurance will pay a predetermined amount of money to your beneficiaries, according to your policy agreement. Life Insurance is not as complicated as it seems, and most of the time it can provide a lot of protection without much investment. If you have financially dependent children or spouse, a mortgage or other debt, it is imperative to be clear about their financial future in the event of your death.

Many growing families are not usually in a financial situation to have accumulated enough savings to self-insure, i.e., enough savings to support your family long term and meet your financial obligations should you pass away prematurely.  In many cases families turn to a life insurance policy that gives them peace of mind for the future, even without a hefty nest egg. However, there are two important questions to take into consideration when selecting a life insurance policy: How much coverage you need, and what type of policy to choose.

How Much Coverage is Enough?
There are many questions to ask yourself when considering an insurance policy, and are selecting a level of coverage:

• Are you paying off a mortgage so your family can live in a house that is fully paid off?

• Will you be able to provide financial support for your surviving spouse, who may struggle to pay all of the bills on his/her own?

• Can you provide financial support for your children until they finish their schooling and become financially independent?

• Are you able to provide financial support for other costs that will arise in a one parent household? For example, extra childcare costs, transportation and house work. It is important in the case of a single working parent household that both spouses be adequately insured: If the work-at-home parent were to pass away, all their usual duties and responsibilities would need to be considered.

Remember that as your family grows and your dependents become financially independent, debts are paid off and you continue to save for your future and your insurance needs should decrease.

What Type of Insurance Policy Should I Choose?

Once you have determined how much insurance would be required, the next crucial question to answer is what is the best type of insurance for your personal situation.  

Group insurance policies are often available through employers. These policies may be included with benefit packages, may not require a medical exam, and are less expensive than individual coverage. Group insurance may have limitations on the amount of coverage you may purchase and the coverage may cease after you leave your employer.  

Individual life insurance policies are personal insurance contracts between an individual and the insurance company. The policy is yours until it matures – or you cease to pay the premiums. Individual policies are much more flexible with the amount of coverage you can purchase, making these policies better long-term options, as compared to group policies. There are two main types of individual life insurance policies: Term and Permanent.

Term insurance allows you to buy coverage for a set amount of time, and once that period is over the coverage ends. Term insurance usually carries a significantly smaller cost, as opposed to permanent insurance policies (described below), for the same amount of coverage.  it is important to purchase term life insurance that carries a long enough term to get your children through their education, and ensure that your major debts are paid off. In most cases a 20 or 30-year term should be sufficient to cover most major financial liabilities. Term policies are often recommended for young families.

Permanent insurance is designed to last your entire life and may be more appropriate than term insurance, depending on your situation. For example, you might consider a permanent insurance policy if you have a financially dependent spouse that does not work, if you have children that would be financially dependent for their entire life due to disability, if you have large tax liabilities at death that need to be mitigated, or if you aspire to leave a charitable bequest.

Life insurance is an extremely important tool for families as it can greatly mitigate the financial burden if one of the family members were to pass away. The common forms of life insurance mentioned here are generally enough for most people, however choose your policy carefully, ensuring it provides the appropriate amount of coverage, and addresses your need for a term or permanent policy.