Already a parent or expecting a child? Parenting is both a rewarding and chaotic experience. Your life will never be the same as a new parent, and neither will your insurance needs. Your life will cease to be about you. That little bundle of joy will become the center of your universe and will need protecting, not just now but until they’re on their own… or perhaps forever, at least in our hearts. An important type of protection your child will definitely need is financial protection. Experts tell us that part of any sound financial plan— retirement savings and investments– should also include life insurance. And it shouldn’t just be for new parents, but also for expectant parents, and experienced parents who may not have started to build that foundation for their family. Life insurance does just that, provides a safety net in case you’re no longer there to provide. You might already have a “starter” life insurance policy, or one provided by your employer, but believe me, your needs change tremendously once kids enter the picture. That basic coverage may no longer cut it for your new responsibilities.
Here are some things to consider and tips for why purchasing life insurance for new parents is important:
Start thinking about future educational expenses.
It is never too early to start considering the college and other future expenses for a child that is not even born yet or is just a baby. But they grow up fast and the future will be here before you know it. The expense of higher education in our country is at an all-time high and that College Savings Plan, which will help to offset some costs, won’t be enough to replace the family’s main source of income to pay for that degree. It’s important to consider these spiraling costs when determining the coverage amount you will need in a life insurance policy. One formula from financial experts is to add $100,000 of coverage per child to cover future college expenses. As parents we all want he best opportunities that a college degree can provide for our children. Therefore, factoring that big-ticket item into the amount of life insurance and for how long, is critical to assure that our kids will have all the tools they will need someday.
The Head of Household and the Stay-at-home parent both should both have life insurance.
No doubt the paycheck that the head of the household brings home is the mainstay of a family’s financial wellbeing. That stable income provides the cash flow to pay for the mortgage, credit cards, and to cover everyday expenses. But while liquidity is key, the in-kind services provided by a stay-at-home parent that may not have an outside income source, provides valuable services that keep a family going. How do you put a price tag on priceless services? The death of that parent will put the complete burden on the surviving parent to pay for the everyday things that are required to run a household and raise a child. Replacing that support would not be cheap and could significantly cut into the family’s monthly budget. A life insurance payout will help defray those costs and alleviate both the emotional loss of that spouse and parent, in addition to the financial burden.
Why you shouldn’t name your minor child as your life insurance beneficiary.
You’re buying the policy to provide for your kids’ financial protection right? So it seems logical to designate them as your beneficiary. Well, your heart may be in the right place but here is why you need to use your head to choose your beneficiaries wisely. You can’t just dole out hundreds of thousands of dollars to a minor child even if you want that child to directly benefit from your death benefit payout. If you were to name the child as the policy beneficiary, a probate court will have to designate a guardian for the minor’s estate. Creating a trust, yourself, or directly designating an adult (perhaps a close relative or your spouse with an insurable interest) to look after the distribution of money to the minor would be the best options. State regulations can limit if or how much a minor child can collect in life insurance proceeds. They may have to wait to receive the life insurance benefits until the court appoints a guardian to administer the funds. Take control now, so you can avoid their heartache later on.
Weighing the benefits of term vs. permanent life insurance and understanding the difference.
Life insurance for new parents offers two main categories: term and permanent, (a/k/a “cash value”) life insurance. Term life insurance provides coverage during a set period, from 5-30 years, and premiums remain level for that entire time. In other words, the rate you will pay today while you’re younger and healthy, remains the same until the policy expires say in 20-years. The difference between term vs. permanent life insurance is that the latter offers lifetime coverage… but at a price. The cost is significantly higher because permanent coverage acts as a savings account, building up cash value over time. But buying it now may be beyond your budget. Another smart move for young parents is to buy term insurance with a “conversion option.” That gives you the choice of converting it to a permanent policy later when you can afford it.
Make sure you speak with a licensed, independent agent.
Of course we can do our own web research to figure out how to find the best life insurance coverage, but it doesn’t hurt to have a bit of professional guidance. A licensed, independent agent can help you as much or as little as you want throughout the process. The point is that an unbiased agent from several trusted online brokers will help steer you to the right choices. They don’t represent one carrier and can provide free quotes from multiple carriers that are right for your specific life insurance needs. For instance, you might be interested in comparing only non-medical life insurance policies that don’t require you to give blood or undergo any medical testing. Not all the companies offer that type of policy. The agent will know which ones do and can save you valuable time from your busy parenting duties… plus the approval time of no exam policies is much shorter than traditional ones. The whole thing can be done electronically within days, so you don’t have to worry about pushy sales people.
A financial windfall to replace lost income
The Insurance Barometer Study is released each year by Life Happens and LIRMA. This study details what modern consumers are primary concerned with when it comes to their insurance, finances and coverage. The study states that It is estimated that it only takes 6 months for half of all U.S. households to feel the financial strain from the loss of a primary wage earner. More than one-third would feel the impact in a month or less, according to the study. Look at it this way: 1 in 3 households would have trouble paying living expenses if the main earner were deceased. According to the study the most at risk household are the age group the Millennials. These statistics paint a dire but realistic picture that could be averted with the windfall a life insurance payout would provide. To figure out how much life insurance is enough for your family; a rule of thumb is to buy 10 times your income and then add the cost of college expenses for each child.
Your workplace policy may not be enough.
If you are lucky enough to work for a company that offers a benefits package of a pension plan, health insurance, and employer-paid group life insurance you are in the minority these days. While this is a great benefit, the payout is often low, about twice your base salary, or whatever your employer determines for your coverage amount. This may be enough if you don’t have any assets or a family, but the employer-provided benefit will likely fall short if you have a spouse, a young child, a mortgage, and a college fund to consider. To that end, what happens if you leave or lose your job? Your employer-provided life insurance policy doesn’t follow you… no job, no plan. For this reason, an individually owned term life insurance policy is the best way to make sure that you can take care of your growing family if something should happen to you.
Shopping for life insurance for new parents can feel overwhelming and even a little terrifying. It can be intimidating, confusing, and make us feel mortal. No parent likes to think about the possibility of dying and leaving their children behind. But use fear as your motivator. Like I said earlier, you’re now responsible for a life other than your own. We all want to feel invincible but the challenges of parenting and the fragile health of a child make us realize that tomorrow is not guaranteed to us. You need to be sure you can protect and care for your child and keep the promise you made to them. Life insurance for new parents is a real-life necessity.
If you are interested or in need of life insurance, make sure to check out: LifeQuote.com for all your life insurance needs.