How to Build a Life Insurance Plan for Your Family

Sean McGinn is an assistant director of Product Positioning in the Insurance Solutions department at Northwestern Mutual.

During the busyness of everyday life, our minds can become consumed with daily responsibilities. So, it’s all too common to neglect crucial things like planning for the future and safeguarding our loved ones.

Life insurance is a critical part of your family’s financial planning, and it’s worth thinking about life insurance for each family member—not just for those earning income. As you’ll see, there’s much more to life insurance than the death benefit.

We will explain what life insurance can do for your family and why people get it. Then we’ll give a little background on life insurance riders.

What is family life insurance?

Family life insurance is having a life insurance policy in place for each person in your family. There are strong reasons to protect all your loved ones—from a baby to the oldest adult. There are different types of life insurance for various situations. Your financial advisor can talk through the best policies to protect you and your family.

Different types of life insurance policies for your family

There are two main categories of life insurance to consider for your family: term life insurance and permanent life insurance.

With term life insurance, your coverage is temporary, meaning that it will cover you only for a certain time period. Term life insurance is typically more affordable than permanent for the same amount of death benefit.

With permanent life insurance, coverage is lifelong. As long as you keep your policy in place and pay the required premiums, it will someday pay a death benefit. Permanent policies can also build cash value that is guaranteed to grow tax deferred. You can borrow against it at any time throughout your life (although borrowing will reduce your death benefit).¹

Each member of your family is a little different. In a similar way, each type of policy is bought for unique reasons. Let’s look at why insurance makes sense for each family member.

Life insurance for people earning an income

When your family depends on your income, life insurance can protect them financially if you pass away. The death benefit can help your family afford their home, pay for daily living expenses or complete their education. So, when considering a life insurance policy for someone earning an income, you’ll want to think about how much you’ll need to replace that income if they are gone.

Life insurance for caregivers

When setting up a family insurance plan, most people consider life insurance to protect lost income but don’t give much thought to insuring family members who contribute in other ways. If your family relies on an unpaid caregiver, such as a stay-at-home spouse or grandparent, losing that person may require adding paid helpers to your household.

A life insurance policy can help cover services that are provided by unpaid family members who may do everything from shopping, cooking and cleaning to childcare and eldercare. Replacing those services can be very expensive.

Life insurance for your children

It can be easy to think there’s no reason to get life insurance on the lives of your children. In reality, it can give them a financial head start. Here’s how.

It protects their insurability

Buying permanent life insurance for healthy children at a young age gives them a financial head start. It locks in a low premium for them, and it avoids the risk that they’ll be disqualified from getting a life insurance policy if they later develop a chronic disease or go into a hazardous line of work.

It allows them to grow cash value

Some types of life insurance build cash value that’s guaranteed to grow over time, tax deferred. Doing so can build a financial safety net that your children could access during their lives. Some people borrow against the cash value to help pay for a wedding or make a downpayment on a house¹.

For the rest of their lives, your kids will be able to count on the policy’s death benefit, cash value and the lower-cost premiums you established for them.

It offers a death benefit

If the unthinkable were to happen, your child’s insurance policy could give you the chance to grieve without having to rush back to work. If you were to lose your child, their insurance policy would not only pay for funeral expenses. It could also give you the flexibility to take all the time you need.

Your kids will experience faster underwriting

Life insurance usually requires a check into the medical status of the person being insured. This is called “underwriting.” For children, this is usually simpler and faster than it is for an older person.

Life insurance for your parents

If your parents haven’t saved enough for retirement or end-of-life expenses, life insurance might help you protect your financial future. You can work with them to set up a policy with you as the beneficiary. This can offer a financial safety net to help cover funeral expenses, outstanding debts or other financial obligations when they pass away. You should also keep in mind:

• If your parents have a significant estate value, life insurance may help cover estate taxes upon their passing.
• If your parents provide childcare or similar help, you’ll probably need to pay for those services after they’re gone. The proceeds from a life insurance policy on your parents can provide a financial cushion to pay for the extra help.

You’ll need to talk this over with your parents. After all, you cannot buy life insurance on another adult without their knowledge. Get their agreement for the insurance application.

Family life insurance riders

Your advisor can help you customize your policy with riders or add-ons to your policy that give you specific benefits and protection beyond your base coverage. (Not all riders are available on all policies.) These additional benefits can help make sure that you’ll have an insurance policy that fits your family today—and down the road. Two popular choices:

• Waiver of Premium – The insurer will pay your premiums if you become totally disabled² from a sickness or accident.³
• Additional Purchase Benefit – You can buy more coverage at certain ages regardless of the insured person’s health and when the insured person has major milestones (like getting married or having a child).

As your family life changes, riders can help a policy stay rightsized for each family member’s situation. You can choose to buy one (or more) riders now and then drop it when it’s no longer needed.

Build a holistic insurance plan for your family

Every family needs a financial plan, and life insurance is an important part of that plan. A family insurance plan that includes life insurance policies for the whole family ensures that your family can weather the stresses of all phases of life. Life insurance can be a flexible financial tool that works alongside investments and other aspects of your money to reach your goals. That way, you can help protect your family and help it prosper.

Your Northwestern Mutual financial advisor can help you understand different life insurance options for your family. They can show you how your policies fit into your larger financial plan.

¹Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event. Your policy's cash value typically becomes a useful source of funds only after several years of premium payments, which allows the cash value to build up.

² Insured must be continuously and totally disabled for at least six months. As long as the insured’s total disability begins before the policy anniversary closest to their 60th birthday, premiums can be waived for the entire time they are totally disabled. If the insured’s disability begins after their policy anniversary closest to their 60th birthday, premiums will be waived until the policy anniversary nearest their 65th birthday. The ability to perform the substantial and material duties of the insured’s occupation is only one of the factors that determine eligibility for Waiver of Premium benefits. The Waiver of Premium benefit may contain exclusions and limitations. Eligibility for insurance, additional policy benefits and qualification for benefits is determined on a case-by-case basis. For costs and complete details of coverage, please contact a Northwestern Mutual financial representative.

³ With universal life, there are different types of waiver of premium riders. You can design the rider to cover a planned premium amount or just the expenses needed to keep the death benefit in force.