When it comes to looking at various types of life insurance, I’m pretty sure that you will agree, it can be awfully confusing. With so many terms and jargon to wrap your head around, it is a wonder that anyone even manages to take out an insurance policy in the first place. However, the confusion is about to ease up a little because in this article, we are going to be taking a look at dependent life insurance and what it is.
If you have been told that you need to take out a dependent life insurance policy or someone has simply mentioned the term and you have wondered what it means, then keep reading for all the information that you will need regarding the subject.
What Is Dependent Life Insurance?
OK, so if I was going to put it in layman’s terms, I would simply say that dependent life insurance is a policy which you take out in case of the death of a partner or a child. When I say partner, I mean spouse. This is where the term ‘dependent’ life insurance comes from, essentially these people are your dependants.
In the event of any of these people passing away, a dependent life insurance holder will receive a sum of money which is usually used to cover the costs of things such as a funeral and other expenses which come alongside a death. It is relatively well understood that this type of policy does not pay out huge amounts and is used more in the way of a ‘helping hand’ if you will, in the sad case of the death of a child or spouse.
Your dependent life insurance is usually added on to your own life insurance policy as an ‘extra.’ Depending on where you purchase your insurance from will depend on the payments and the payouts and other terms and conditions, but on the whole, most of these policies are pretty similar.
Are There Any Restrictions To Dependent Life Insurance?
The policy will cover the death of a child or spouse but there are some restrictions as to who you can cover. Let’s take a look at these in a little more detail.
- A dependent child is a child who is under the age of 21, who is not married and can be a stepchild, a child over whom you have legal guardianship or an adopted child as well as biological children.
- Some policies will cover a child up to the age of 26.
- Children who suffer from a mental or physical disability may stay on a dependent life insurance policy into adulthood.
- Children who are over the maximum age on the policy but remain in full time education may also stay on the dependent life insurance.
- The spouse must still be in a relationship with the person taking out the police, if they are legally separated or divorced, the policy will not apply.
- A common law partner will qualify for dependent life insurance.
- In some cases, other adult dependents may qualify to be on your policy, for example an elderly parent for whom you provide daily care but they must be fully dependent on you and this includes in a financial capacity.
Depending on where you live will depend on how your policy works, there are some places which do not allow the use of dependent life insurance at all. That being said, there are others which restrict it to EITHER a spouse OR a child. In most cases when you take out a dependent life insurance policy the coverage will extend to all of your children meaning that you won’t have to take out several policies if you have more than one child. Pretty handy, right?
If you do not have any children then there is the option to buy dependent life insurance simply for a spouse.
Many dependent life insurances are taken out through your employer, and so if this is something in which you may be interested, it is a good idea to approach your employed to discuss the options. However, the insurance can be taken out independently as well, for those who prefer. It is worth noting that in some cases you may be liable to paying tax on any payout you receive. This applies if the payout comes to a total of $2000 or more. When taking dependent life insurance out with an employer it is referred to as ‘voluntary dependent life insurance.’ In this case, the insurance may only be taken when a particular event has occurred for example, if you get married or directly after you begin working for the employer if you already qualify for dependent life insurance.
One last thing to note when taking out this type of insurance is that there cannot be two policies which include the same children. For example, if you and your spouse are both employed within the same company, only one of you can take out a dependent life insurance plan against any children that you share. However, you may take a plan out for one another.
How Much Dependent life insurance Coverage Can I Buy?
Once again, I will refer to my earlier statement that depending with whom you take out the insurance, will greatly depend on what you will be offered. Of course, as with anything it is highly recommended to do your research before you purchase any insurance in order to make sure that you are going to be getting the best deal for you and your family.
If you are taking out a dependent life insurance plan for your three children, as an example, you would not be able to cover them separately. Instead, you would take out a plan of let’s say $6000, this would be split into three, for each of the children. In the event that any one of the children were to die, you would receive $2000 as a payout. But it is also worth remembering that if you have taken out the insurance policy through your employer, you are likely to be taxed on any payout amount.
In many cases, thankfully, regardless of how many children are on your dependent life insurance plan, the rate will stay the same, meaning that you won’t be out of pocket if you have a lot of children compared to those who may only have one.
When buying this type of life insurance for your spouse, you should take note of the fact that the rates are usually higher for an adult. The reason for this is that adults are much more likely to pass away than a child and therefore are seen as being more high risk in terms of whether the insurer is going to have to pay out. That being said there are variants to take into consideration, the main one being the age of your spouse and their general health as well as how much coverage you have chosen to take out. In the case of a spouse being on your dependent life insurance policy, the monthly rate is subject to change over time as your spouse gets older. This is pretty standard and nothing to be alarmed about, but bear in mind that this will not happen in the case of any children on the policy.
what changes can i make to my dependent life insurance?
Throughout yours and your families lives, there may be things which cause the dependent life insurance to change. We are now going to look at some examples of things which may have an effect on your policy.
- If you have taken dependent life insurance out with your employer, the insurance may end for your children if you leave your job, are fired or retire. However, the policy may be converted for a spouse in this situation.
- If you divorce your spouse, the insurance can be converted to an individual life insurance.
- If you are going to convert a policy, there may be restrictions in place which should be discussed with the provider before agreeing to any plan.
What Is The Benefit Of Taking Out Dependent Life Insurance?
You may be wondering whether the small amount that is usually paid out on one of these types of insurance plan is worth the hassle of taking out the policy in the first place. It might also be a subject which you do not want to think about, after all the death of a loved one, especially one as close as a child or a spouse can be difficult to imagine. However, there are benefits which you should take into consideration before locking the idea away.
- The cost of an unexpected funeral can take a toll on your finances, but with a dependent life insurance policy in place, this worry will be eliminated.
- The payout can also be used to pay for any outstanding medical bills in the case of a child.
- It gives you peace of mind and once it is dealt with, you can put the subject aside until the day (which hopefully is either a long time in the future for your spouse and not at all in the case of your children) that you need it.
Overall, taking out a dependent life insurance plan is a beneficial idea all around. Hopefully, now that you have a much clearer understanding as to what this type of insurance is, you will be better armed to make a decision regarding the plan you will take out. Let’s take a quick recap of some of the key points that we have discussed to finish.
- Dependent life insurance has to be taken out alongside an individual plan and cannot be a stand alone policy.
- This type of insurance is most often taken out through your employer.
- Payouts are usually smaller than other forms of life insurance and are intended for use in covering death expenses.
- Dependent life insurance can cover a spouse or your children.
- Monthly rates tend to be relatively low, but are slightly higher for adults than for children.
- The policy may end or convert if you leave your employment.