There are various different types of life insurance policies that have been specifically designed to cater to different individuals and fit their needs. One of these policies is dependent life insurance.
What is Dependent Life Insurance?
Dependent life insurance provides a death benefit to a spouse, child or any other dependent if they die. Although it is not easy to think about a child dying, it is important to think about the financial repercussions it can have. And because the emotional implications of a dependent’s death can be huge, you have to be prepared for the financial ones so that you can minimize the crisis if it happens.
The average funeral costs can be somewhat around $10,000 which can easily cause a dent on the financial situation of a typical family.
A dependent life insurance policy for children with a value of $10,000 will make sense as it can cover the funeral costs without any added financial strain. However, for a spouse, it may be different. If your spouse brings in financial help into the house, that needs to be taken into consideration when deciding how much the policy should value. Besides that, it is also important to see what other “services” they offer. For example, if your wife takes care of the house and your children, you need to think about the cost it would take to replace those services. This value will then be added to the policy.
Full-time childcare can easily be over $1000 per month. If your spouse takes care of the laundry, cleaning, cooking and manages the entire house, the cost to replace all these services could easily be thousands of dollars per month. Even if they stay at home and do not provide a paycheck to the house, the value they do provide to your house would be taken into consideration.
Do you need Dependent Life Insurance?
Young children are highly unlikely to die, most people do not get dependent life insurance coverage for their kids. If for some reason, you do get dependent life insurance for kids, it would usually be from group insurance from their employer. This is also known as dependent child life insurance.
It is also uncommon for people to get life insurance for non-income earning spouses. Many people tend to get insurance only for the primary income earner. Other household members are usually neglected when it comes to life insurance.
A study conducted by Foresters Financial in 2018 revealed that 84% of Americans think most people need life insurance. While 68% people think they personally need life insurance yet only 59% people have some form of life insurance.
If you have been provided dependent life insurance from your employer, you have the option to take it or skip it. Just like life insurance does not continue after you leave your workplace, your dependent life insurance will not continue either. To find what is dependent life insurance coverage according to your agreement, you should speak to your HR and find out what your policy says.
What is Voluntary Dependent Life Insurance?
Voluntary dependent life insurance is also known as dependent group life insurance. It is often made available by the employers as a benefits plan. Just like group life insurance, voluntary dependent life insurance can be purchased by enrolling in your employer’s group insurance. It can usually only be open for enrollment after a qualifying event like getting hired or getting married. If you elect for voluntary dependent life insurance, it is likely that your coverage will not begin immediately. For example, if you decide to purchase this policy during open enrollment for your spouse, coverage will begin on 1st January of the next year.
Depending upon when you purchase voluntary dependent life insurance or when the coverage begins, you might have to provide evidence of insurability for your dependents. This basically means you will be required to fill out forms answering basic health questions and other medical questions about your family so the insurer can evaluate what level of risk your family is.
Child life insurance policies can not usually be altered. So once a child no longer fits the eligibility criteria for a dependent life insurance, they will no longer have any life insurance. However, a dependent life insurance policy does come with a conversion option for spouses which can be used if:
- You either quit, retire or are terminated from your position.
- You divorce your spouse.
This conversion option allows your spouse to maintain life insurance by converting the dependent life insurance policy into an individual life insurance policy without providing proof of insurability. You might have limited options as to which insurer you can take your new policy out with and the types of policies available to you.
The only difference is that with dependent term life insurance, your policy will be valid for a period of time after which it will lapse. You can choose to renew it or get another policy.
Thus, the bottom line is, now that you know what dependent life insurance is, it is a good idea for you if you have young children and a stay at home spouse that manages the house and takes care of the children. If your spouse is an income earner, it is likely they would get life insurance from their own employer, thus, would not need coverage from your dependent life insurance policy. And although it is not easy to think about your children dying, getting a child dependent life insurance policy will only save you from the financial crisis if anything unfortunate was to happen to your child.