Life Insurance Dependents: Age-Based Exclusions And Their Impact

Life insurance is a way to ensure financial security for your loved ones after you pass away. It is a good idea to invest in life insurance if you have people who are financially dependent on you, such as children or a spouse. Dependent coverage options vary by company and plan, but the amount of coverage available is typically significantly lower for dependent coverage than for an individual policy. The definition of a dependent varies, but it usually includes a spouse or a child. In some cases, other adult dependents like a domestic partner or an elderly parent may also be covered.

What is dependent life insurance?

Dependent life insurance is a type of life insurance that pays out benefits if a covered spouse, child, or other dependent passes away. It is typically purchased by the primary policyholder as an add-on to their existing policy. The primary policyholder is automatically designated as the beneficiary, meaning that they will receive the death benefit if a covered dependent dies.

Dependent life insurance can be obtained through a group policy or added to an individual life insurance policy. It is often available as part of a benefits package through an employer, referred to as voluntary dependent life insurance or voluntary group life insurance.

Dependent life insurance policies usually cover the funeral and burial expenses of the insured. The policy limits are typically within the range of the average cost of a funeral, which is $7,848 according to the National Funeral Directors Association. Coverage is offered in increments of a dollar amount, such as $2,000 or $10,000, and the maximum amount of coverage per eligible dependent varies by plan and type of dependent.

Dependent coverage options and availability differ depending on the company and plan. While most plans allow for dependent life insurance for children and spouses, some group plans also permit coverage for other adult dependents, such as domestic partners or elderly parents.

It is important to note that dependent life insurance is not the same as an individual life insurance policy for a dependent. The latter is typically purchased by the dependent themselves, whereas dependent life insurance is an add-on to the primary policyholder's existing policy.

Who qualifies as a dependent?

The definition of a dependent varies depending on the type of life insurance policy and the insurance company. Here is a detailed overview of who qualifies as a dependent:

Spouse

A spouse typically qualifies as a dependent for life insurance. This includes anyone recognised by state law as your husband or wife. It can also include a common-law spouse if the marriage is legally recognised by your jurisdiction. In some cases, a domestic partner may not be eligible for dependent life insurance unless the plan specifically allows for coverage of other adult dependents. It is important to review the terms of your specific plan to determine eligibility.

Children

Biological children, stepchildren, and legally adopted children usually qualify as dependents for life insurance. This also includes any child in your legal guardianship. The coverage for children is generally offered until they reach a certain age, commonly until the age of 26, similar to the provisions of health insurance. However, older children may still be considered dependents in certain situations, such as if they are mentally or physically disabled or are full-time students. Proof of disability, such as a physician's statement, may be required in such cases. Additionally, the child is typically required to be unmarried, and the parent must be supporting and claiming the child as a dependent on their taxes.

Other Adult Dependents

Other adult dependents, such as a domestic partner or elderly parent, may be eligible for dependent life insurance coverage in some plans. However, this is less common, and the requirements may vary. Typically, these dependents need to live with the policyholder, be unmarried, and be financially dependent on or interdependent with the policyholder.

It is important to note that dependent coverage options and eligibility criteria can vary by insurance company and plan type. Therefore, it is always advisable to carefully review the terms and conditions of your specific life insurance policy to determine who qualifies as a dependent.

How does age affect the cost of life insurance?

Age is the primary factor affecting your life insurance rate. The older you get, the higher the chances are that an insurer will have to pay out on your policy, causing your premiums to increase.

Life insurance rates are generally cheaper when you're younger. This is because you are likely healthier, which helps you get a lower rate. However, most people don't get life insurance when they're young, often because they don't think they need it.

The reality is that life insurance can benefit people of all ages and lifestyles. Even if you're young, your life insurance policy can help with funeral expenses and can be used to pay off debt you may leave behind. If you don't have any dependents now but think you may in the future, getting a life insurance policy is a great way to start planning for their future.

The cost of an insurance policy depends on a number of factors, including the type of policy, the amount of coverage, your age, gender, present health, medical history, tobacco use, and occupation.

Term life insurance will generally be cheaper than permanent life insurance, and whole life insurance premiums will be higher than universal life coverage. For example, a 30-year-old woman who doesn't smoke and is in average health can expect to pay about $87 per month for the premium on a 30-year term life policy with a $1 million death benefit. If that same woman wanted a universal life insurance policy, she would pay significantly more—about $391 per month for a $1 million policy.

In addition, premiums for life insurance generally increase by an average of 8-10% each year. This is because, as you get older, the chances of an insurer having to pay out on your policy increase.

What is the best age to purchase life insurance?

There is no definitive "best age" to purchase life insurance, as it depends on several factors, including your financial situation, life stage, and future goals. However, understanding how age affects life insurance rates and the different types of policies available can help you make an informed decision.

Age is the primary factor influencing life insurance rates. Generally, life insurance premiums increase as you get older, with rates rising by an average of 8-10% annually. This is because insurers consider older individuals to have a higher likelihood of experiencing health issues or passing away, leading to increased premiums to compensate for the higher potential payout. Therefore, purchasing life insurance at a younger age can result in significantly lower rates.

Another factor to consider is the type of life insurance policy. The two main types are term life insurance and permanent life insurance. Term life insurance covers you for a specific period, usually 10, 20, or 30 years, while permanent life insurance covers you for your entire life. Permanent life insurance policies, such as whole, universal, and variable life insurance, tend to be more expensive than term life insurance because they provide lifelong coverage and often include a savings or investment component.

When deciding on the best age to purchase life insurance, consider your current circumstances and future plans. If you have financial dependents, such as children or a spouse, life insurance can ensure they are financially secure in the event of your untimely death. Additionally, if you have significant debts, such as a mortgage or education loans, life insurance can help your beneficiaries pay off these obligations.

Furthermore, life insurance can provide financial stability during life transitions, such as getting married, starting a family, or purchasing a home. It can also be beneficial if you want to leave an inheritance or make a charitable donation upon your death.

While there is no one-size-fits-all answer, purchasing life insurance earlier rather than later is generally advisable. By securing a policy while you are young and healthy, you can take advantage of lower rates and ensure your loved ones are protected throughout your life. However, it is essential to periodically review and adjust your coverage as your life circumstances change.

What are the different types of life insurance?

There are five main types of life insurance: term life insurance, whole life insurance, universal life insurance, variable life insurance, and final expense life insurance. Each type varies in coverage length, complexity, coverage amount, cash value, and other features.

Term Life Insurance

Term life insurance is geared toward those who need coverage for a certain number of years. It is generally more affordable than permanent life insurance and provides coverage for a set number of years, paying out as long as the policy hasn't expired and premiums have been paid. At the end of the term, you may be able to renew your policy at an adjusted rate, but typically only on a year-to-year basis.

Whole Life Insurance

Whole life insurance is a type of permanent life insurance that provides coverage for your entire lifetime, as long as you keep paying your premiums. It also includes a savings component that a portion of your premium will pay into. Whole life insurance policies typically cost more than term life policies with similar coverage.

Universal Life Insurance

Universal life insurance is another type of permanent life insurance that provides coverage for your entire life as long as you pay the premiums. It's sometimes called adjustable life insurance because it offers more flexibility than a whole life policy. For example, universal life policies allow you to increase or decrease your death benefit and adjust or skip your monthly premium within certain limits.

Variable Life Insurance

Variable life insurance is a riskier type of permanent life insurance. It is tied to investment accounts, and the cash value will rise and fall based on your payments and the performance of your selected investments. The greater range of investment options means there could be a greater benefit to your beneficiaries when you pass away, but it also opens you up to much higher risk, fees, and costs.

Final Expense Life Insurance

Also known as funeral or burial insurance, final expense insurance is a type of whole life insurance that offers a smaller and more affordable death benefit designed to cover end-of-life expenses such as funeral costs, medical bills, or outstanding debt. Final expense policies are typically easier for older or less healthy individuals to qualify for.

Frequently asked questions