Life often throws curve balls our way, and one of those curveballs is the untimely death of a spouse or child. Not only can this create havoc to your emotions, but it will also create havoc for your finances. After-death expenses will cost thousands of dollars and create added stress during an already stressful time. Dependent Life Insurance provides coverage if your dependents were to die.
Table of Contents
- The Difference Between a Beneficiary and a Dependent
- About Dependents
- About Beneficiaries
- Dependent Life Insurance Coverage
- Purpose of Dependent Life Insurance
- Cost of Dependent Life Insurance
What is the Difference Between a Dependent and a Beneficiary?
People often get dependent and beneficiary mixed up when it comes to life insurance. In order to understand dependent life insurance, you need to understand what a dependent is and what a beneficiary is and how they are two different things.
A dependent is someone who depends on you to live. You provide dependents with shelter, food, necessities, and other things needed to survive. They generally don’t work or would not be able to make a living on their own. Examples of dependents include your children or a spouse. It can also be other adults that live with you, are financially dependent on you, and unmarried. An elderly parent is an example of an adult-dependent that is not your spouse. The connection to life insurance is that a dependent can be listed as a beneficiary on a life insurance policy, whoever, not all beneficiaries are dependents.
A beneficiary is someone who will receive your death benefit after you die. They are named on the policy and can also be changed at any time. They can be a dependent person, but they do not have to be. For example, if you listed your sister as a beneficiary, there is a good chance she is not your dependent. She more than likely will have her own living arrangements, her own job, and pays her own bills. When you die, she will receive your death benefits and help pay for your after-death expenses.
Dependent Life Insurance Coverage
Dependent life insurance is a type of insurance that pays out a death benefit when one of your dependents passes away. Designed to cover dependent’s after-death expenses, dependent life insurance coverage is typically a modest amount. It will cover a spouse who is dependent on the policyholder and will cover children. It is a bit like final expense life insurance for a dependent instead of for an elderly person. It is also not a permanent policy when the coverage extends to children because a dependent can expect to no longer depend upon you at some point in the future.
Any children named as dependents must be unmarried in order for the policy to pay out a benefit, but it can also include step-children as well as adopted children. You can take out a dependent life insurance policy on your children once they are 14 days old, and they can remain covered until they reach a specified age. This specified age may differ from company to company, but it is generally 21 years-old.
Coverage isn’t generally specific to one dependent. You can get a policy that will cover just your spouse or only your children. You can also get a policy that will cover both. However, if you want a policy just to protect your oldest child, that is not likely to happen. A dependent life insurance policy will typically cover all dependents. There is no cash value of this coverage, it is merely an additional feature added to existing life insurance coverage. Coverage for dependents can also sometimes be obtained through a person’s employer. It also can be added to both individual and group life insurance policies as a rider, when available.
Some states restrict dependent life insurance. Some states put a maximum on how much dependent life insurance you can purchase. Other states don’t allow dependent life insurance at all.
Dependent life insurance coverage may be taxed depending on how much the policy is worth. To be able to purchase dependent life insurance, you must already have life insurance yourself. There is a variety of life insurance that you can choose from, all with different costs and structures. Be sure to pick a type of life insurance that is best for you and shop around to compare policies. When going through your employer, dependent life insurance can only be purchased during an open enrollment period. Other times you can purchase dependent life insurance is significant life events such as the birth of a baby, the hiring for a new position, or getting married.
Unlike purchasing life insurance through a company, purchasing dependent life insurance through your employer mean the coverage will not start right away. Instead, it will begin at a given date in which all of your policies start. Before being able to insure your dependents, you may have to answer medical health questions to get approval for coverage. The insurance company will want to evaluate their risk. Some of the common questions include preexisting conditions and whether they use tobacco.
Purpose of Dependent Life Insurance
When someone dies, it is actually a fairly costly affair. The purpose of dependent life insurance is to help with after-death expenses such as medical bills and funeral expenses. It is not designed to live on or take the place of a salary, it is only meant to ease the financial burden of a dependent passing away.
Is Dependent Life Insurance a Necessity?
Dependent life insurance is not a necessity, but having it will give you peace of mind. Medical bills and funeral expenses can add up rather quickly when a dependent passes away. Having the death benefit payout will relieve some stress and allow you to mourn without stressing over financial issues.
Cost of Dependent Life Insurance
Dependent life insurance is usually offered in specific increments such as $2,000 or $10,000. Your spouse will have higher limits than your children, and their maximum coverage is sometimes restricted to between 50%-100% of your own supplemental coverage. One example of your premium’s cost for your child’s dependent life insurance maybe $0.15 for every $1,000 of coverage. If you would like a $10,000 policy, you will pay $1.50/per month for your child’s dependent life insurance. This would be paid per child. An example of dependent life insurance coverage on your spouse is $0.60 for every $1,000 of coverage. When insuring your spouse with dependent life insurance, your premium will go up every five years because they are getting older, and it is a higher risk to insure them. If you get your dependent life insurance through your employer, your premiums should be withdrawn automatically from your paycheck after taxes are paid.
Policies Purchased Through Your Employer
As mentioned before, dependent life insurance is purchased through your employer and is automatically taken from your paycheck. When you leave your employer, dependent life insurance does not typically follow you, especially if the insured is a child. It can not be converted, so your child dependents will no longer be insured.
Spouses may have the option to be converted, however. There are a few times when your dependent life insurance policy for your spouse will be converted. Those times are at the time of divorce, retirement, termination, or you quit your job. The helpful thing about converting your dependent life insurance policy on your spouse is that it will prevent you from showing proof of insurability. This means a medical exam would not have to occur for your spouse to continue to have life insurance. Terms may be limited, and premiums could increase, but they will continue to be covered.
Dependent life insurance is a type of life insurance that you take out to help cover your dependents’ after-death expenses. Dependents are the people who rely on you financially and typically live with you. Dependents can be your spouse, children, or other adults that live with you.
Dependent life insurance usually provides a modest amount of coverage and can not be borrowed or used as collateral for a loan. The most common way to purchase a dependent life insurance policy is through your place of employment. Purchasing a dependent life insurance policy will give you peace of mind and comfort, knowing your loved ones’ final expenses are taken care of.