The high cost of living can be a major headache for new parents. According to some recent estimates, a middle-income family may spend more than $200,000 a year to raise a single child, and this cost doesn’t include a college education. If you just had a baby, the inevitable financial cost of raising that child is generally a good reason to start thinking of ways to secure your family’s financial future. Life insurance can be a viable strategy to accomplish this, but you must make smart choices regarding your life insurance. There are various scenarios and multiple options to consider and match with your long-term or short-term goals, ensuring your child gets maximum protection and benefit from insurance coverage.
Here are 7 practical life insurance tips for new parents.
- Get Coverage as Soon as Possible
Have you decided that you need life insurance to resolve key financial uncertainties impacting your ability to take care of your family and children? If so, now is the best time to get your coverage. Based on past life insurance premiums trends, the cost can only increase going forward. Plus, if you wait to buy later, any future health conditions you have will affect the price for you. When you are a younger parent, you are healthier and can take advantage of lower rates available to you right now.
- Life Insurance Can Cover Your Family’s Needs When You Pass Away
When you need to cover your family’s financial needs for a reasonable duration after your death, consider purchasing whole life (permanent) life insurance. These policies include a death benefit that may pay for various expenses to make life for your spouse and children more comfortable in your absence. If you have a car loan, mortgage, or other long-term debts, it is important that you consider getting enough life insurance coverage to address these payments. The policy can also cover your children’s college tuition fees and school supplies.
- Life Insurance Is Not Necessarily Expensive or Beyond Your Means
Studies show that many parents stay away from life insurance due to the impression that coverage is too expensive. However, costs usually vary based on needs and medical history. Rates are typically low for younger policyholders. Also, there are cheaper short-term coverages for parents not ready for lifelong protection.
- Many Parents Need More Than Workplace Life Insurance Coverage
Your employer’s life insurance policy may have glaring coverage gaps. Many such policies are too limited to pay monthly mortgage fees or children’s college tuition fees upon the policyholder’s death. If your debts and family’s expenses amount to tens of thousands of dollars or more per year, you may need to get a separate life insurance policy. You also want to ensure continuing protection for your family even after leaving your current job.
- Protect Your Child Via a Trust
When your child is the main reason for taking out life insurance, you may be tempted to name them as a direct beneficiary. While this is not wrong, it may prevent your child from accessing the proceeds soon after your death. In some states, a beneficiary must be of a specific legal age to directly access the death benefits. You can avoid this complication by naming a trust as a beneficiary. The trust can then distribute the funds to your children even if they have not attained the required age. Alternatively, designate your spouse or an adult child to pass on the life insurance death payments to your kids.
- Non-Working Parents May Need Life Insurance Too
Life insurance is not just for people with a monthly salary or other income. Stay-at-home parents need protection too, as they inject significant value into the family, which could be dearly missed after they pass on. One study estimated that moms that stay at home all year are worth an annual salary of $178,201 for their different roles, including house cleaning, child care, cooking, and laundry. Generally, both parents should assess the need to purchase a life insurance policy because each plays an important role with a significant financial value.
- Consider Various Life Insurance Options
The main insurance options for parents are permanent life and term life. As a young parent enduring a few financial constraints early on in your adult life, you may consider short-term coverage like term life insurance. This option provides coverage for a specific duration, such as 10 years, and is usually cheaper than permanent life. If your circumstances or needs change later, you can upgrade to permanent life.
Alternatively, permanent life insurance offers lifelong protection and secures your family’s long-term financial needs. While the policy is usually more expensive than short-term options, it comes with stable premium rates that will not change throughout your life. It even has an investment component (tax-deferred cash value) besides the death benefit. When you have permanent life coverage, you can use the accumulated cash value in different ways while you are still alive, such as taking out a loan against the account.
Life insurance is so flexible that you can get hybrid coverage instead of just term or permanent. Various options let you transition from one type of policy to another based on your coverage needs. As a new parent, you can start with a hybrid policy that provides low-cost term benefits for now and includes a link to long-term care benefits usually available with permanent life insurance policies.
Speak to Our Agents to Get Personalized Life Insurance
To avoid any confusion or guesswork when choosing the best life insurance policy, consider talking to our life insurance agents. At Hoffman Brown Company, our professionals can advise you on the most appropriate coverage based on your unique financial circumstances and needs. Contact us today to learn more.