Family Life Insurance

If you are married or have kids, life insurance is a must-have.

It provides much-needed peace of mind knowing that if you pass away unexpectedly, your loves ones will receive a cash payment. It could help your spouse cover everyday living expenses, pay off the mortgage, and pay for your children’s education.

It may make sense to also buy coverage for additional events other than death, such as a disability or critical illness. Child’s term life insurance is another type of coverage that is worth looking into. 

Family life insurance is a general term that covers any type of life insurance that's meant to protect your family. Let’s dive into the details.

What is Family Life Insurance?

Family life insurance is a collection of different types of insurance that provide protection for your family from the unexpected.

For example, you may choose family insurance coverage that includes:

• a whole life insurance policy to provide permanent coverage and build supplemental retirement income and
• a disability insurance policy to protect your paycheck

Or you may choose:

• a 20-year term life insurance policy to cover your expenses until your children are financially independent and
• a small permanent life insurance plan to pay for funeral costs.

Another option? You could go with:

• a single life insurance policy and
• add such riders as a child’s term rider, spousal term rider, disability insurance rider, and critical illness rider to protect your loved ones from all possible disaster scenarios. 

Although the exact coverage included in family life insurance differs from company to company, it usually includes some or all of these types of coverage: 

• Life insurance
• Disability insurance
• Critical illness insurance
• Children’s term insurance

Choosing the best type of life insurance

Life insurance policies are either term or permanent. Which one is better for you depends on your personal situation, financial obligations, and budget. 

Term Life Insurance

Term life insurance is the simplest form of life insurance since it has only one goal: to reduce the financial impact of your death on your loved ones.

Coverage lasts for a specific period, such as 5, 10, 20 years, or until you reach a certain age. If you outlive the coverage period, the policy ends. You can renew your policy, though the renewal premium will be higher after the initial policy term period. \
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Term life insurance is much cheaper than permanent life insurance. As such, it is a popular option when looking for affordable coverage. For a 35-year-old non-smoking male, the premiums can be as low as $18 a month!

Benefits of term life insurance

• It costs 10-15 times less than permanent life insurance for the same amount of coverage
• Offers guaranteed level premiums and a death benefit, meaning your price and the payout remains the same for the entire term
• Provides peace of mind that your family will be covered during the most vulnerable years (e.g. until your children become financially-independent individuals) with the possibility to renew coverage if your life insurance needs change down the road

Permanent Life Insurance

Permanent life insurance has no expiration date. If you pay your premiums, your coverage will last as long as you do. Apart from lifetime protection, permanent life policies also accumulate cash value on a tax-advantaged basis. Part of your premium payments is used to cover the net cost of pure insurance and various administrative fees while another part is used to grow cash value. 

Policy owners can access the cash value while they are still alive in a variety of ways, including by taking a policy loan or making a cash value withdrawal. The policy beneficiaries, in most cases, only receive the death benefit upon the insured’s death, not the unused cash value. 

Benefits of Permanent Life Insurance

• Pays out regardless of when you die
• Helps cover financial liabilities that do not have an end date (e.g. a special-needs child)
• Can be used for estate and tax planning
• Grows cash value and lets you can access it at any time and for any purpose during your lifetime

Permanent life insurance comes in two flavors: whole life and universal life insurance. Whole life plans are slightly more expensive than comparable universal life policies, but they can be a better option for those who have little appetite for risk.

Here is a quick rundown of the key differences between the two.

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Disability and Critical Illness Insurance

Life insurance helps your loved ones deal with the financial impact of your passing away. But financially speaking, a severe illness or injury to you could be no less devastating. 

If you were to lose the ability to work due to a disability, would your family be able to maintain their standard of living?

If you were to fall critically ill, would you be able to pay out-of-pocket medical expenses without dipping into your savings?

If you answered no to any of these questions, you likely need disability and critical illness insurance.

Disability Insurance

Disability insurance aims to replace a part of your income if you are too sick or injured to work. In the event of a disability, your policy will pay a fixed amount every month for a set period of time. 

Disability payments, however, do not start immediately. Instead, they would start after a certain period has elapsed since the day you were disabled. This period, known as the elimination or waiting period, is usually 30, 60, 90, 180, or 365 days. 

For instance, if you have a disability insurance policy with a 60-day waiting period, the benefits start from day 61. You will receive the first payment on the 90^th day (i.e. at the end of the first month following the waiting period). After that, the insurer will issue a payment at the end of each month until you recover and return to work, or until the benefit term expires if that is not possible.  

You can purchase a disability insurance policy or add a disability rider to your life insurance plan to cover circumstances when you are ill or injured and can no longer work. Medical conditions that may qualify for disability insurance benefits include, but are not limited to, the following: 

• Cardiovascular conditions, such as heart failure
• Musculoskeletal problems, such as back injuries
• Mental disorders, such as depression
• Cancer
• Kidney disease
• Immune system disorders, such as rheumatoid arthritis

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Critical Illness Insurance

Critical illness provides you with a one-time, tax-free payment upon diagnosis of a covered illness. You can buy this coverage as an add-on to your life insurance plan or a separate policy. How you use this money is up to you. You can use it to cover medical expenses not covered by your health insurance or non-medical costs, like child care. 

Like disability insurance, critical illness plans include a waiting period (usually 30 days). So if you are diagnosed with a covered illness, and your policy has a 30-day waiting period, you will receive the payout on day 31. 

Although they differ from insurer to insurer, typical illnesses and conditions covered by critical illness may include: 

• Heart attack
• Cancer
• Stroke
• Alzheimer’s
• Blindness
• Organ transplants
• Multiple sclerosis
• Kidney failure

Children’s life insurance

You can buy a separate policy to cover your child. They are often affordable and can help you cover unexpected expenses and time off work in the event of a loss. Alternately, you can add the child term rider to your life insurance policy. This rider covers all your children, including those not yet born.

How much does family life insurance cost?

How much you will pay for family life insurance depends on several factors, including: 

• The type of coverage: Permanent life insurance offers lifetime protection and accumulates wealth, but can be 10-15 times more expensive than term life. Within term life insurance, policies that have a shorter term (e.g. 10 years) are more affordable than those with longer terms, say 30 years. 

• The amount of life insurance coverage: Your personal situation and financial obligations will determine how much coverage is needed. Someone with young kids and a large mortgage balance would want more protection than a person with older children and no mortgage. The greater the coverage amount, the higher the premiums. 

• Insured’s age and health: Life insurance companies reserve their best rates for young and healthy applicants. If you are older than 40 or have one or more underlying health conditions, expect to pay more than your younger or healthier counterparts. 

• Smoking status: Life insurance can be two to five times more expensive for smokers than for non-smokers. 

• Additional riders: Life insurance riders, such as a disability insurance rider, critical illness insurance rider or child term’s insurance rider, can provide additional coverage or ways to receive a cash sum while you are still alive. However, the extra protection comes at a cost. The more riders you add to your policy, the greater the overall cost will be. 

Conclusion

Family life insurance covers more than one type of coverage. Most insurers allow you to create a package that works best for you. 

Not sure which types of coverage to include in your family life insurance bundle?

Rather than wade through a sea of options, let Dundas Life help you. Based on your needs, our life insurance experts will recommend you the best family life insurance policy and help you secure a great price. 

Frequently Asked Questions

Is family life insurance worth it?

Although not for everyone, family life insurance can be worth the cost for those who have a family. With the right policy, you can rest easier knowing your loved ones are protected from life’s uncertainties.

How long should my family life insurance last?

You may find yourself asking this question if you are buying term life insurance. Because permanent life insurance does not have an expiry date, you do not have to worry about your policy ending before your financial obligations do. But that is not the case with a term life plan, which lasts for a set period. Your term life policy should last long enough to meet your longest obligation.

For example, if you expect to pay off your mortgage in another 15 years, send your children off to college in the next 18 years, and save enough for retirement over the next 20 years, you should buy a 20-year term life plan.

What to consider when buying life insurance? 

Consider the following things if you are purchasing life insurance:

• Type of life insurance coverage
• Life insurance term (in the case of term life insurance)
• Your age and your dependents’ age
• Your total debt