McEvoy Ins Blog
Life insurance is an important part of financial planning for everyone in your family. It’s designed to help protect our loved ones when we pass away, both financially and emotionally. Although most of us tend to imagine individuals when we think about life insurance buyers, coverage can also be extended to your children and other family members to help make everyone’s lives a little easier when a death occurs.
How to purchase policies for extended familyYou can take out a life insurance policy on an extended family member or someone important in your life, such as a romantic partner or business partner. To do this you’ll need to get the person’s consent on the policy. In other words, you need him or her to know what you’re doing and you need to get their permission via signature to collect vital data, such as vehicle records, prescription records, and relevant health and life insurance information for the application. The person will typically have to undergo a life insurance medical exam as well.
Another important part of the process is demonstrating insurable interest, which means you need to be able to show proof that you will suffer emotionally and financially if the person dies. Typically, your spouse or parents do not have to prove insurable interest when purchasing policies. Other connections, such as a business partnership or a girlfriend/boyfriend relationship will need that documentation. Your insurance company will want to verify that there’s a true relationship between you and the person you want to cover.
It’s important to note that you cannot buy a life insurance policy for anyone you want. An acquaintance or stranger will be rejected by your insurance company.
Why you might want to buy coverage for othersThere are many reasons why you might want to cover people with life insurance, depending on who they are, their relationship to you, and their situation. Here’s a breakdown of potential insurees:
Spouse or partnerLife insurance is an important part of securing a future with your spouse. It’s a good idea for you to have a policy that can cover:
ParentsAging parents often come to depend on their children in their golden years and caring for them comes with financial responsibility. Buying life insurance for your parents can provide you with financial protection if they leave behind unpaid bills when they die. Some of the financial considerations that life insurance can help cover include:
A policy for a child would lock in premiums at a young age, protect your child’s insurability, and could be used for investment or savings for your child’s future expenses. However, while life insurance rates will go up as your kid ages, chances are they won’t ever be priced out of or denied a policy when they need it.
If you have an older child, and you cosigned student loans, mortgages, car loans, credit cards, etc., you may want to take out a life insurance policy to pay off those loans if your child dies prematurely. Conversely, as a son or daughter with a co-signed loan, you could take out a life insurance policy on your parents to make sure you can cover the costs on the money borrowed, should they pass away.
You can insure your child by purchasing a children's life insurance policy or adding a child rider to your own life insurance policy.
Siblings and other relativesThere are some scenarios in which covering your brother, your sister, your aunt or uncle, or even your cousin makes sense. If your sister, who is taking care of your elderly parents, suddenly dies, for example, your parents may not be able to cover the care they need. To ensure their continued support, you would purchase a life insurance policy for your sister and name yourself the beneficiary. That way you would get the money to help care for your parents.
If you are considering a life insurance policy for your children or an extended family member, it’s a good idea to make an appointment with a financial professional to understand your options and develop a strategy.
Planning your financial strategy can be difficult and complex—knowing where to start is often the hardest part. How do you know if you’re making the most of your finances? Visiting with your financial professional is always a great place to begin. Before doing so, you may want to evaluate your finances and make sure you’re not making any of these four common mistakes.
Your money isn’t accessible enoughIt’s important to save money for times of need or emergency, but where should you put it? Should the unexpected happen, you may want access to your funds so you can support yourself and your loved ones. What types of restrictions or limitations does your account have? During these times of emergency, would these restrictions make it hard to access your funds? While different than savings accounts, some life insurance policies can offer living benefits to help cover the costs of qualifying illnesses. Consider an option that provides the flexibility you need and that may offer other benefits you’re able to use.
Your money isn’t “working hard” toward your financial strategyAccording to the FDIC, the average interest rate for a savings account is 0.09%.1 Flexibility and accessibility are both important, but so is maximizing your funds and making your money work smarter and harder. How can your money potentially accrue more value while sitting in an account, better preparing you for the future? Knowing your account’s interest rate may be important—but are there other options out there that could offer you more? While life insurance isn’t the same as a savings account, indexed universal life insurance can offer the opportunity to grow cash value at potentially higher rates while remaining accessible through loans and withdrawals.
Your money suffers from feesProtecting your money can be difficult. Make sure you’re familiar with the various fees being charged to wherever you may be keeping it. Some banks charge consumers, for example, if their account dips below a certain balance. There also may be annual fees charged for simply doing business with them. Consider options that offer you the flexibility you want with the breathability you need that keeps your money safe from a multitude of fees.
Your money isn’t being leveragedIf the unexpected were to happen, what would your beneficiaries receive today? In a savings account, your beneficiaries would likely receive the money as is with any interest accrued. Consider options that offer strong cash-value growth so you can maximize your legacy for your beneficiaries and loved ones. Life insurance immediately leverages funds into a larger, generally tax-free death benefit, allowing you to leave more behind.
Wherever you may keep your money, make sure it’s working toward your financial strategy. Keep your options in mind and determine what will set you up best for your future and the legacy you leave.