Dependent life insurance can cover unexpected costs if your spouse or child dies unexpectedly

Most life insurance policies are meant to make up for lost income in case the insured person dies. For those who are not the primary income earner, life insurance is still an option.

In this case, you would look for dependent life insurance as an add-on to the main income-earner's policy. You may be able to add it to an individual plan, or select it as an option under the group life insurance plan offered by your employer.

Here's a look at what dependent life insurance is, how it works, and when dependent life insurance might make sense for your family.

What is dependent life insurance?

Dependent life insurance is a type of insurance coverage that pays a death benefit if a covered spouse, child, or other dependent dies. While no one likes to think of having to bury a child or spouse, there are financial implications with those losses. If you are unprepared, you could be hit with both an emotional and financial crisis at the same time.

The average funeral easily costs around $10,000, which is a lot more than a typical family can spend without a serious financial crunch.

For dependent life insurance policies on children, a policy value of around $10,000 makes sense for many people, as it would cover the funeral costs without additional financial strain.

For a spouse, it's important to consider their contribution to the home. Even if it is not financial, if a spouse spends their days taking care of children and cleaning the home, you should consider the cost of replacing those "services" if your spouse were to die.

Full-time childcare can easily exceed $1,000 per month. If you have a stay-at-home spouse who takes care of the kids, laundry, and cleaning, it could cost thousands of dollars per month to replace everything they do. Even if they don't take home a paycheck, consider the value they provide to your household when buying dependent life insurance.

Deciding if you need dependent life insurance

Because young children are highly unlikely to die, many homes skip dependent life insurance coverage for their kids. If they do carry this kind of coverage, it is often from group life insurance at work.

Life insurance for non-income-earning spouses is not as common as it should be. Many families are underinsured when it comes to life insurance for the primary income earner. Other household members are often not covered by life insurance at all.

A 2018 study by Foresters Financial found that 84% of Americans think most people need life insurance, 68% think they personally need life insurance, and 59% actually have some form of life insurance.

If your dependent life insurance is through your work, you usually have a choice to opt-in or skip the coverage. When life insurance comes from your employer, it may not go with you when you leave your job. That goes for dependent life insurance as well.

Contact your human resources department or review your benefits materials to learn more about how it works at your company and see if your spouse can maintain their dependent life insurance. 

Life insurance on dependents may not make sense for many households. Review your finances, worst-case scenarios, and the cost of insurance premiums to decide if it makes sense for you.