The Best Life Insurance Policies for Small Families
Life insurance decisions can involve different factors from family to family. For instance, the size of your family can have a significant influence on purchase decisions. Since the death benefit would have to be distributed among fewer members if the family size is relatively small, each qualifying member would receive a larger payout than if the same policy had to cover a much larger family.
Look at it this way: if you have two kids, each will get the same death benefit from a $250,000 face value policy as four kids would get from a $500,000 policy. So the policy with the lower face value will cost less than the more generous policy.
What We Mean by “Small” Families
For our purposes, we’ll define small as being a family with two to four members. This might mean a childless couple, a single parent with two or three kids, or two parents with as many as two children.
The first critical decision you have to make regarding the life insurance you’ll purchase on behalf of your small family unit is what type of insurance will best meet your needs and theirs.
Whole or Term Life Insurance?
There are two main kinds of life insurance. Permanent life includes whole life and universal life policies. The idea behind both is that if you’re the policyholder, you’ll keep paying premiums for the rest of your life. When you pass on, the death benefit will be delivered to your designated beneficiaries.
Term policies are purchased for a pre-selected period of time or term. A death benefit will only be paid if the policyholder dies within that term. Depending on a few factors, either type of coverage can be the right one for you and your small family. Let’s take a closer look at both of these types of policies.
A death benefit will absolutely be paid as long as you continue to pay the premiums for your whole life or universal life policy. Both types of permanent life insurance have an investment component as well as a death benefit. That means you can, under certain conditions, borrow some of the amounts you’ve paid into the policy once the fund achieves a certain level.
Keep in mind, though, that your beneficiaries will receive less than the face value of the policy unless you pay that amount and accumulated interest back before you die. If that amount hasn’t been repaid, it will be deducted from what your family members receive. There are also very limited situations where you can receive your own death benefit if you’re seriously ill. Ask your insurance agent for details.
Your term life policy can typically be purchased for periods of one, five, ten, 15, 20, 25, or 30 years. If you remain alive during this term of coverage, you’ll receive no payout when the policy expires. However, it will offer your family financial security if you should die unexpectedly.
Since there’s no guaranteed payout, term life insurance policies tend to cost much less than whole life or universal life policies. This can be especially true if you are relatively young and you’re buying a short-term policy. For example, the cost of a 30-year term policy with a $250,000 face value would be only about $275 a year if you’re a 35-year-old woman and about $309 for a male of the same age. That’s based on the average premium rates for four leading insurers. The cost of whole life or universal life coverage would typically be more.
So Which Life Insurance Type is Right for Your Family?
Only you can answer that question. The type of coverage that you buy will depend on what you see as the purpose of your life insurance plan. If you don’t want to spend as much money and you only see the coverage as being critical while your children grow up and get through school, you might take out a 20- or 25-year term policy that will only pay benefits if you should die during this vulnerable time in your children’s lives.
On the other hand, if you want to make sure a spouse is financially secure when you die (hopefully at an advanced age), you might explore whole life or universal life coverage. In this case, you want there to be a guaranteed payout. This would also be true if you’re going to make sure that your children receive a death benefit even when they’re adults with families of their own.
Also, keep in mind that, no matter which form of coverage you’re looking into, your annual premiums will be much less if you’re younger when you make the buying decision and considered a much safer risk to insurance companies.
How to Get Life Insurance
We know that deciding on a life insurance policy can seem intimidating. Luckily, Cost-U-Less is here to help you navigate your options and find the best policy for your needs and budget. Start your life insurance quote online, over the phone, or at one of our offices near you.