Diapers, baby monitor, multiple strollers, car seat, a bigger car seat, high chair, toys, clothes, formula, food, baby bottles, childcare, preschool. . .and on and on until college and sometimes even beyond. Whew! Reading this list can make even some of the most financially prepared new parents start sweating. This precious young creature of yours can bring not only immeasurable amounts of joy, but also immeasurable amounts of expenses. If either of you were gone tomorrow, how would your family fare in managing all of life’s expenses? There are the funeral expenses, plus the mortgage, daily living and childcare expenses, not to mention long-term financial goals like college education and retirement. If yours is like most young families, the loss of an income would mean that financial pressures would set in immediately.
Who should be insured? In most cases, it makes sense for both parents to have life insurance policies, even if one spouse is at home taking care of the children. If the stay-at-home parent is gone, the surviving parent likely would need to pay someone to take care of the children and house.
How Much Do You Need?
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The arrival of a new baby changes everything and seemingly overnight, conversations at the next barbecue turn to life insurance. Tips on the hottest new restaurant or vacation spot are replaced with talk of life insurance. But everyone’s needs are different, so just because next-door-neighbor Bill is buying two million dollars of coverage doesn’t mean you should follow suit. Life insurance should be a calculated hedge, not a way to get rich. With a new baby in the house, expenses are high so you need to spend your money wisely.
Figure out how much money you will need to adequately support your children through college and your spouse through retirement. Take into account your lifestyle, expenses, personal assets, number of dependents – and their special needs, if any, other sources of income like a pension or rental income. Careful and knowledgeable insurance agents will assist you in determining and understanding what an adequate amount would be – and then you can make your decision from there.
Different Types of Life Insurance
There are two types of insurance, term and permanent. Term insurance is simple in that you pay a premium that covers a fixed term – generally one year, and then if you die within that term, you collect the proceeds. If you don’t die within the term, the premium is money spent. In terms of pricing, term policies are often sold with at fixed premium for a consecutive term of years (say 10 years, 20 years, etc.). For young couples, term insurance is very often the insurance product purchased because it allows young families to more cheaply buy more (death benefit) during the period when a young family’s anticipated cash needs will likely be greatest.
Permanent insurance (which includes “whole life”, “universal” and “variable life” programs) has premiums that build up a cash value. A portion of the premiums are invested by the insurance company and operate like a savings vehicle. If you decide to cancel the insurance at any time, you may withdraw the cash value of the insurance. Alternatively, the insured can often borrow against that cash value as well. Permanent insurance has much higher premiums and the investments made are not always transparent or as projected. For some families, permanent life insurance makes sense for financial and tax planning purposes. Life insurance proceeds are generally counted as an asset in a decedent’s estate. Therefore, tax saving estate plans involving insurance policies are often featured as part of the family’s overall planning strategy. These are complex matters and seeking professional advice is strongly encouraged.
Buy it Now
The cost of, and your eligibility to purchase, life insurance are determined by your age and health history. I hear those who are older should think to Get term life insurance for seniors at Affordable Life USA. Therefore, it is easiest and cheapest to buy insurance while you are young and healthy. Even a seemingly small change in your medical condition could disqualify you later or make the premiums a lot more expensive. It’s tempting to put off buying life insurance when you’ve got so much else going on in caring for a new family, but it is a critical step to fully caring for your baby!
Equally important (and to some, more important) as purchasing life insurance, is purchasing disability insurance. It is more likely that someone will become disabled either through illness or injury during their working years than to die unexpectedly. Disability insurance is even more important for families who rely on one salary instead of two.
Think of disability insurance as insurance for your paycheck. After all, the ability to earn an income is your family’s most important asset. If something were to ever happen to that asset, disability insurance would replace some income to help make ends meet until the person can return to work.
Most employers provide short-term disability insurance. Usually, after all sick days are used up, short-term disability will provide a percentage (usually almost 100%) of the employee’s income for a fixed number of weeks. Long-term disability benefits pick up when short-term disability ends, and can continue anywhere from 5 years to life. Typically, it replaces about 60% of salary. Some employers provide long-term disability, and others offer the option of buying additional coverage. You can also choose to buy long-term disability privately. The upside here is that if you were ever to leave your job, the insurance stays with you. But read fine print and make sure that your private insurance would not prevent you from collecting any group plan.
As new parents, we worry all the time about everything! The bottom line is life is unpredictable. However, you can plan for the unpredictable, and knowing that you’ve financially insured against the “what ifs” can give you a great deal of peace of mind.