Reasons to purchase life insurance for family membersThursday 28 January 2021 | Reading Time: 6 minutes
Buying life insurance is an important part of financial planning that’s designed to help protect our loved ones when we pass away, both financially and emotionally. But that coverage isn’t limited to individuals. It can also be extended to your children and other family members to help make everyone’s lives a little easier when someone passes away.
Can I buy life insurance for family members?
You cannot buy a life insurance policy for anyone you want. An acquaintance or stranger will be rejected by your insurance company. However, you can take out a life insurance policy on an extended family member or someone important in your life, such as a romantic partner or business partner. To do this you’ll need to get the person’s consent on the policy. In other words, you need him or her to know what you’re doing and you need to get their permission via signature to collect vital data, such as vehicle records, prescription records, and relevant health and life insurance information for the application. The person will typically have to undergo a life insurance medical exam as well.
Another important part of the process is demonstrating insurable interest, which means you need to be able to show proof that you will suffer emotionally and financially if the person dies. Typically, your spouse or parents do not have to prove insurable interest when purchasing policies. Other connections, such as a business partnership or a girlfriend/boyfriend relationship will need that documentation. Your insurance company will want to verify that there’s a true relationship between you and the person you want to cover.
Top reasons for insuring your loved ones
There are different reasons why you might want to cover people with life insurance, depending on who they are, their relationship to you, and their situation. Here’s a breakdown of potential insurees:
Insuring your spouse
When you get married your life and your financial future becomes bound to your spouse. Life insurance can be an important part of securing that future, especially if you both have it. You’d want life insurance to leave money to your family to cover:
- Day-to-day living expenses
- Child care expenses
- Final expenses when you pass away
- Outstanding mortgage payments
- Payments for any debts from your assets
- Investments or future income
For more on buying life insurance for your spouse check out our blog, Tips for Buying Life Insurance for Your Spouse.
Benefits of life insurance for children
Life insurance is financial protection that helps dependents cover the bills when a family breadwinner dies. Very young kids don’t provide financial support to your family, so in most cases, it isn’t necessary to take out life insurance for them. The main reason you’d consider taking out a policy on a child would be to cover the cost of his or her funeral expenses in the event of an unexpected death.
A policy for a child would lock in premiums at a young age, protect your child’s insurability, and could be used for investment or savings for your child’s future expenses. However, while life insurance rates will go up as your kid ages, chances are they won’t ever be priced out of or denied a policy when they need it.
If you have an older child, and you cosigned student loans, mortgages, car loans, credit cards, etc., you may want to take out a life insurance policy to pay off those loans if your child dies prematurely. Conversely, as a son or daughter with a co-signed loan, you could take out a life insurance policy on your parents to make sure you can cover the costs on the money borrowed, should they pass away.
You can ensure your child by purchasing a children's life insurance policy. Another option is adding a child rider to your life insurance policy.
Life insurance for siblings
There are some scenarios in which covering your brother, your sister, your aunt or uncle, or even your cousin makes sense. If your sister, who is taking care of your elderly parents, suddenly dies, for example, your parents may not be able to cover the care they need. To ensure their continued support, you could purchase a life insurance policy for your sister and name yourself the beneficiary. That way you would get the money to help care for your parents.
Why you should consider life insurance for your parents
Aging parents often come to depend on their children in their golden years and caring for them comes with financial responsibility. Buying life insurance for your parents can provide you with financial protection if they leave behind unpaid bills when they die. Some of the financial considerations that life insurance can help cover include:
- Funeral expenses – When a parent dies, you may need to make funeral arrangements if they weren’t already planned. Funerals can cost thousands of dollars. Costs for a casket, urn, flowers, obituaries, transportation, use of funeral home and more can be a financial burden on you and your family.
- Financial debt – If your parents have a mortgage, credit card balances, or other outstanding loans, those debts are often passed down to other family members, leaving them with bills they didn’t expect.
- Medical bills – As your parents age, they may accumulate significant medical costs. Prescriptions, medical treatments, doctor or hospital visits, and other care costs may be outstanding when they pass away. If a parent dies in a hospital, the medical bills can be costly for the final days of treatment.
- Moving a surviving parent – If one of your parents dies, you may want to move your living parent closer to home to care for her or him. Those moving expenses, as well as the process of selling the old home, can cost thousands of dollars, especially if your surviving parent lives out of state.
- Caring for your living parent – To care for a surviving parent, you may need to take time away from work, which can impact your income and savings. If a surviving parent requires long-term care in a facility, the cost can be significant.
If you are considering a life insurance policy for your children or an extended family member, it’s a good idea to make an appointment with a financial professional to understand your options and develop a strategy.