What Is The Best Type of Life Insurance For Families in 2025
Life Insurance For Families
No one likes to think about the worst-case scenarios.
However, life has a way of throwing surprises our way when we least expect them.
The truth is that planning for what could happen is how we protect the people we love.
And one way to go about doing that is with life insurance.
So, how prepared are you for your financial future?
Life insurance is meant to protect the people we love
Reasons Why Parents Should Consider Life Insurance
Reasons to purchase life insurance vary from person to person. But, in the end, what matters most is that it provides stability and security for the ones you love. Here are five reasons why families should consider life insurance:
1. You’re the Primary Wage Earner
You may want to consider what would happen if you passed unexpectedly. Would your family be financially okay?
Life insurance helps replace lost income so your family can continue to pay for utility bills, debt, afford childcare, health care, or cover college expenses. Even if your partner is employed, it can be much harder for them to support themselves and your children without depleting all your savings. For most families, paying a mortgage or rent is the largest expense. If you pass away before the mortgage is paid off, your family could use the death benefit to keep up with the payments or possibly pay off the mortgage entirely.
2. Access Funds Early in Case of Serious Illness
It's important to understand that life insurance has specific riders that can provide support while you're still alive. Many policies offer an Accelerated Death Benefit (ADB) rider, which allows you to access a portion of your death benefit early if you're diagnosed with a terminal or critical illness. You can use these funds to cover medical bills or home care, without the burden of financial stress.
3. Support College and Other Major Life Events
The average annual cost of in-state tuition at public four-year universities is nearly $11,610. Out-of-state tuition and fees at private colleges and universities can be significantly higher, even after considering financial aid. With life insurance, your child can still live a happy, successful life even if you’re not there to share it. Whether it’s helping with college tuition, covering the cost of books, planning a wedding, or simply supporting everyday living expenses. It’s not just a policy, but a promise that their dreams for tomorrow won’t be put on hold because of life’s unexpected turns.
5. Protect Your Family Business
If you own a family business, the payout from a life insurance policy can provide the necessary funds to keep the business afloat. The payout can help preserve your legacy by giving your loved ones or heirs the financial support, making sure all your hard work lives on, and your business stays strong for many more years to come.
6. Investment Growth and Wealth Building
Certain types of life insurance, such as whole life or universal life policies, offer the added benefit of building cash value over time. This cash value can be accessed through loans or withdrawals, providing a source of funds for emergencies, retirement, or other financial needs.
Which Life Insurance Plan Is Best for You?
Term Life Insurance
Term life insurance is known to be the most affordable type of insurance policy, where you can set up your coverage based on your financial situation and goals.
Think of it as an agreement between you (the insured) and the insurance company, where you choose the coverage amount and the length of the term.
Throughout this term, you make regular payments to keep the policy active, but once the term ends, the coverage expires with no cash payout. You can apply for a new policy, though premiums may increase based on your age and health.
That being said, even though term insurance is relatively affordable, there is a high chance that you may outlive the policy.
Benefits
Affordability- Monthly premiums are significantly lower compared to whole or permanent life insurance.
Coverage Amounts- Huge coverage amount relative to the premiums you pay.
Flexibility/Comfort- You can choose a term length that meets your financial and personal needs.
Unique features- Return of Premium (ROP)
You buy a term life policy just like normal.
Pay monthly or yearly premiums for the full term
If you outlive the policy, you get all the money you paid back
However, ROP policies usually cost 20–30% more than traditional term policies
Who is Term Insurance most Suitable For
Most young families prefer a more affordable policy for several reasons, including:
They may be carrying significant debt from student loans, credit cards, or a mortgage.
They have young children who depend on them for support.
They may have low savings or no emergency funds.
One of the advantages of term insurance is that you can choose the duration of the policy. This allows you to select a term that ends when your major debts are paid off, your children are self-sufficient, or your savings or retirement funds are sufficient to support your loved ones.
For further details, check out our blog on term life insurance
Whole Life Insurance
Whole life insurance, also known as a permanent life insurance policy, is unique mainly for its two key features: a cash value and life coverage.
The cash value is the savings-like part of your policy that accumulates over time.
You can borrow against the policy's cash value while it's active. But if you pass away with an outstanding loan (including interest), that amount will be deducted from the death benefit, and the remaining balance will go to your beneficiaries.
In contrast to term life insurance, the premiums for whole life policies tend to be generally higher. But then again, term life insurance only provides temporary protection, while whole life insurance offers a guaranteed death benefit.
Its combination of lifelong coverage and growing cash value makes whole life insurance a smart choice for building wealth and ensuring your loved ones are cared for.
Benefits
Paid-up policy: Once you've paid all the required premiums, the coverage stays in place for the rest of your life (no more premiums).
Cash Value: "Cash Value" acts as a savings component that accumulates over time at a guaranteed rate. This growth is usually tax-deferred, meaning you won't pay taxes on the interest as it increases.
Loan Access: You can borrow against the cash value in your policy for help in case of emergencies, college tuition, or other needs. If you have existing debt, the policy can assist you in paying it off.
Dividends: If the policy is bought from a mutual fund company, you may be eligible to receive annual dividends.
Who is Whole Life Insurance most Suitable For
This type of policy is ideal for families who:
Want guaranteed coverage that lasts a lifetime
Like the idea of building savings (cash value) over time
Prefer something steady, reliable, and wish to build generational wealth
Final Expense (Burial) Insurance
Burial insurance, also known as final expense insurance, is a type of whole life insurance designed to cover costs like funeral expenses, medical bills, burial fees, and unpaid debts. Given the high cost of funerals, having a burial insurance policy can relieve your loved ones from such financial burdens.
Burial insurance works similarly to whole life insurance in that:
It lasts your entire life.
It builds cash value over time.
It pays out a guaranteed death benefit to your beneficiary.
You might wonder why someone would choose a larger whole life policy when a burial insurance policy could offer cheaper premiums with a similar structure.
The reality is that burial insurance typically provides smaller coverage amounts, usually ranging from $5,000 to $25,000. However, it can be a straightforward and affordable solution for older adults or individuals with health issues.
Life Insurance Riders
In addition to the benefits provided by term and whole life insurance, you can always enhance your policy by adding riders. While riders come with an additional cost, they offer extra benefits and can be tailored to your preferences.
You can add riders to both term and permanent life insurance policies. Some riders are available directly through insurance companies, while others may be offered through your employer.
Though there are several types of riders, the most common ones for families include:
Spouse rider- Spouse rider provides life insurance coverage for your spouse for a limited time (usually for the duration of your main policy). You can also convert this rider into a separate, full policy for your spouse before it ends.
Child rider- A child rider offers temporary life insurance coverage for children, typically from 15 days old up to 25 years old. It also offers a small death benefit, if something were to happen. Similar to the spouse rider, once the child becomes an adult, the rider can sometimes be converted into a regular life insurance policy.
Cost-of-Living Adjustment (COLA) rider- Your death benefit increases over time to keep up with inflation.
Frequently Asked Questions (FAQs)
Is Whole Life Insurance the Right Type of Permanent Coverage for Me?
Whole life insurance is the right plan for your family, only if its additional cost and specific benefits align with your needs and goals. Keep in mind that whole life insurance is not the only viable option available.
1. Guaranteed Universal Life (GUL): GUL offers lifelong coverage at a lower premium rate than whole life policies, but it builds minimal cash value. If your primary goal is to secure lifelong protection without a savings component, GUL may be a suitable choice.
2. Life Insurance Retirement Plan (LIRP): With LIRP, not only do you get permanent life insurance coverage, but you can also use the savings from your account to supplement your retirement plan.
What Happens If I Miss a Payment?
Both types of policies typically have a grace period of 30 days. If you miss a payment and don’t take further action within those 30 days, your coverage will lapse, and you will lose your coverage and your cash value.
A better option is to surrender your policy, so you can at least receive the accumulated cash value.
Is There Life Insurance That Covers the Whole Family?
If you want extra protection for your spouse or children, you can buy a full policy for yourself and then add riders, such as a Spouse Rider and a Child Rider, to your policy. An alternative to this is to purchase Joint Life Insurance, which can cover two individuals (usually spouses) under a single plan.
“How to Get Started”
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