Family life insurance is a life insurance policy which extends coverage to multiple members of a family, generally parents and their children under age 14. It pays benefits upon the death of any family member included in the coverage, but the policy generally continues in force as long as premiums are paid timely and at least one of the covered family members remains alive. The parents in the family group are generally subject to the insurance company’s underwriting process; that is, they’ll be asked to complete a medical history and, if necessary, have a medical exam. Children generally aren’t subject to the underwriting process, though.
Heavily regulated in the US, life insurance is a contract between an insurance company and an individual or group. In consideration of the payment of a premium, usually on a periodic basis, the insurance company promises to pay a specific amount of money to a beneficiary upon the death of the individual or any member of the group. As long as the premium payments are up to date, the policy is considered in force and if the policyholder dies, the insurance company will pay the benefit. The beneficiary is usually named by the policy owner; in the case of a family policy, the parents own the policy.
When a family life insurance policy is written, a single application form is completed. Medical questions are asked of the adults just the same as if they were purchasing individual insurance. Some family life insurance applications may ask a few medical questions about the children, but in most cases all that’s requested is name, date of birth and gender. Some policies automatically cover newborns with the provision that the insurance company be provided with details of the new arrival within a certain timeframe, usually 30 days. Unless there are follow-up medical questions, the policy is usually issued within a week or two of the application's submission.
The most obvious benefit of a family policy is the convenience of having a single policy and a single premium. The insurance company benefits from the convenience as well, and many will offer premium discounts for the purchase of family life insurance policies. In addition to the convenience and the premium discount associated with these policies, having newborns automatically covered is also a convenience, although the low rate of newborn or infant mortality in most developed countries makes this an insurance benefit that’s rarely paid.
The issue of insuring children’s lives is sometimes controversial. Life insurance traditionally provides protection against the loss of income, which is why it’s always recommended that the family’s main breadwinner carry the greatest amount of life insurance coverage. The coverage amounts for the children in a family life insurance policy is often fixed at a small amount such as $5,000 US Dollars (USD) or $10,000 USD. These amounts are considered sufficient to pay the funeral and burial costs for a child, and coverage beyond those amounts isn’t recommended.
Children's coverage generally ends when they reach a certain age in their early 20s, determined by the insurance company. At that point, they're permitted to “convert” their coverage to regular individual life insurance. This convertibility option usually includes the opportunity to purchase additional insurance without having to prove insurability. This option is extremely valuable when exercised by young adults whose medical situations, hobbies or occupations put them in groups considered "high risk" by insurance companies.
