How to Build a Life Insurance Plan for Your Family

Lynn Lertiz is a vice president of life insurance at Northwestern Mutual.

No one likes to plan for what to do if something unexpected happened to you or your loved ones. But thinking about the future is one of the greatest gifts you can give your family. It allows you to make sure they’re covered—and it allows you to proactively plan to give them the life you imagine for them.

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 special “add-ons” you can use—called life insurance riders—to design a plan tailored to your family’s needs.

What is family life insurance?

Family life insurance is a family plan that includes a life insurance policy for each person in your family—from a baby to the oldest adult.

Though it may not seem necessary to purchase a policy on children, by doing so, you’re setting your kids up for some major benefits down the road.

Each person’s situation is unique and different, so as you build your family life insurance plan, it’s best to work with your financial advisor to talk through the best policies for 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, your coverage is lifelong. As long as you keep your policy in place (and pay your premiums), it will someday pay a death benefit. Permanent policies also build cash value that is guaranteed to grow, tax deferred, and can be a flexible financial tool you can access for many purposes throughout your life.

Just as each member of your family is different, there are different reasons you may want to consider a policy for each of them. Let’s look at why insurance makes sense for each family member.

Life insurance for people earning an income

If your family relies primarily on your or your spouse’s income, life insurance can protect them financially if you pass away. The death benefit can help your family afford to stay in their home, pay for daily living expenses or fund major milestones you had planned—like paying for college. So, when considering a life insurance policy for someone earning an income, you’ll want to think about how you’ll need to replace that income—and keep major savings goals on track—if the income earner is 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 equally important ways. If your family has caregiving needs met by a family member, such as a stay-at-home spouse or a grandparent, losing that person may add significant expenses to your household.

A life insurance policy can help cover additional costs that would be required if something were to happen to a stay-at-home spouse to cover things like childcare, eldercare and household management.

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 ensures that they’ll have a life insurance policy down the road, even if they later develop a chronic disease or go into a hazardous line of work that would otherwise disqualify them from being eligible for life insurance.

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 will build a financial safety net that your children could access during their lives for many reasons.¹ Some people borrow against the cash value to help pay for a wedding or make a down payment on a house.

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.

It has a simpler underwriting process

Life insurance usually requires a check into the medical status of the person being insured. This is called “underwriting.” Because children are generally in good health and haven’t yet developed any chronic health conditions, this is usually simpler and faster than it is for an older person.

Life insurance for your parents

Many people today are finding themselves in the “sandwich generation”—taking care of both children and parents. If your parents haven’t saved enough for retirement or end-of-life expenses, life insurance might help you protect your own 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. Here are other ways a policy on your parents can help:

• 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, since you cannot buy life insurance on another adult without their knowledge. Even if you’re the one that purchases and pays for the policy for them, they need to be willing and able to apply for the insurance policy.

Family life insurance riders

Part of tailoring a life insurance plan to you might include adding specific customizations to your policies, called riders. Riders can 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.

Here are two popular riders people often choose:

• Waiver of Premium – The insurer will pay your premiums if you become totally disabled² from a sickness or an accident.³

• Additional Purchase Benefit – You can buy more coverage at certain ages and when the insured person has major milestones (like getting married or having a child), regardless of the insured person’s health at that time.

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. Your advisor can help you decide what riders you should carry on your policies as you design your plan together.

How to build a holistic insurance plan for your family

Life insurance is an important part of your family’s financial plan. It can protect you and everyone in your family in different ways and ensure that your family can weather the stresses of all phases of life.

Life insurance can also be a flexible financial tool that works alongside investments and other aspects of your money to help you reach your goals. That way, you can help protect your family and meet the financial objectives you’ve set together. Your Northwestern Mutual financial advisor can help you understand different life insurance options for you and your family and help design a comprehensive plan that includes strategies to grow and protect your money. They’ll show you how your policies fit into your larger financial plan and help to achieve the goals you and your family want to reach together.

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.