If you are well on your way to becoming a first-time parent, then, first off, congrats! You are probably in the nervous, prenatal excitement phase.
Apart from watching hours of youtube videos and reading parenting content whenever you have a free moment, you are also likely wondering what steps you can take to help build a solid foundation for your new family’s future.
One of the many suggestions you will find online is to make sure both you and your partner are covered under a life insurance policy. That sounds simple enough – in fact, you may already have a policy through work. However, is it enough? Are there better options?
It might seem a bit morbid to be preparing a plan in case you or your partner dies, but having a plan in place is one way you can give your family a fighting chance if an emergency does arise.
What is the Difference Between Term and Permanent Life Insurance?
Term life insurance is cheaper than permanent life insurance and only guarantees coverage for a specific time period. Ten, fifteen, and twenty-year policies are standard coverage terms that most people are aware of; however, there are shorter and longer-term life insurance policies, depending on need.
Permanent life insurance policies are more expensive, but they protect you up until your death. Because death is a certainty, usually, the payout is also certain, barring any circumstances that might disqualify the holder.
Which type of Life Insurance is Best for New Parents?
Unless you are wealthy, it’s probably best to go with the cheaper option. You can select a term life insurance policy that covers the essential window of time where your children are not financially independent. By doing so, you can assure that you or your partner have the financial means to raise your children and get them independent.
A permanent life insurance policy might be a worthwhile option if one of your children has a disability and will need lifetime care. Having a permanent life insurance policy guarantees your child with lifelong disabilities has a safety net in place should you or your partner die.
Plus, consider that many policies allow you to convert a term life insurance policy into a permanent life insurance policy. That way, you have the option to extend your coverage indefinitely if needed.
1. Do Both Parents Need Coverage?
The safest route would be to have some type of coverage for both parents. Even if one of the parents is a stay-at-home caretaker, being prepared for the unexpected is one of the defining reasons why some families can overcome hardship and others simply cannot.
2. Should I Wait to Take Out a Life Insurance Policy?
Perhaps you think that it might be better to wait a little longer to take out a policy, but age is one of the leading indicators life insurance companies use to determine the cost of your annual payments.
Age, health, pre-existing conditions, habits, lifestyle, and occupation all are factors that will factor into your annual costs. Many policies require that you submit to a medical exam before the price is determined. When it comes to taking out a life insurance policy, the present is always the best time for action.
3. How Much Life Insurance Coverage is Enough?
Ok, so you think both you and your partner need coverage, but what is the right amount? You don’t want to overpay for a comprehensive policy when the chances are good that you’ll never need to file a claim. On the other hand, you certainly don’t want to be left unprepared should something happen.
Truthfully, this answer depends on your family’s finances, how many dependents you have, and how long you’ll be responsible for those dependents. When taking out a life insurance policy, you should consider how much income would be needed to meet your family’s financial obligations in the short term, as well as in the long term.
You want to consider costs for college, debts, and unforeseen expenses like other emergencies. You should project the annual costs of services you or your partner provide financially out over the length of time required to get your dependents independent. This projection includes daycare, primary and secondary education, and potentially other types of services.
How Do I Select My Life Insurance Policy Beneficiaries?
Generally, your spouse is your primary beneficiary because they will need the financial support to make sure that your children are taken care of properly. However, if for some reason you are already a single parent, naming your young children as beneficiaries might not be the best idea.
This is because children cannot claim the life insurance payout directly while they are still legally children. A guardian would be appointed to look after the payout in the event of your death, but if you didn’t have this worked out beforehand, then the potential for misuse or abuse of this system and your payout becomes more likely.
You want to ensure that your partner or children rightfully receive the payout in the event of your death. To make sure they receive the payout as intended, you can appoint a trust as the beneficiary of your life insurance policy. The terms of the trust can be worked out with an attorney as you see fit.
Your best bet as a new parent is to consult with a financial advisor and a life insurance attorney before deciding what life insurance policy is right for your family. Their expertise can give you a clearer picture of your options regarding choosing a life insurance policy.
Good luck to you and your new family!