Becoming a first-time parent or adding a new bundle of joy to your family is a major milestone. The change and excitement of being a parent also comes with additional responsibility. Not only are you providing and caring for yourself, but also the family that you have created.
For many Americans and their family, there appears to be a lingering concern.
According to the LIMRA Insurance Barometer Study, 40% of families report they would face financial hardship within 6 months if the primary wage earner passed away. For 1 in 5 families, hardship would begin within just one month. Most of the uninsured consumers overestimated the cost of life insurance.
Planning for your family includes facing the uncomfortable questions like “what will happen to my children or family if I die?” Life insurance can provide for your family financially. Even if you already have group life insurance from your employer, it might not be enough. Here's what to consider:
Which parent needs life insurance?
Ideally both, and that means not just those who are employed. A stay-at-home parent typically provides childcare, meal preparation, house cleaning, and other services which have monetary value. At today’s market prices these services can total to thousands of dollars each year. In an event if something were to happen, the surviving parent would have to pay to replace these costs.
If both parents are employed, you want to ensure that each parent's financial contributions to the family are covered.
Life insurance is also a great option for single parents. Although life insurance companies are generally unable to pay benefits to minors, a legal custodian may be selected until your child is of legal age. Beneficiaries could include a caretaker, other family members, or a trust.
What type of life insurance is best?
There are two basic types of life Insurance: term life and permanent life. When deciding which is the best option - consider your overall life situation, budget, finance, and insurance goals.
Term life is temporary and covers a set number of years. Typically, in a 10-, 20-, or 30-year period. Most younger parents select this option because it's generally more affordable. It allows you to choose coverage for when your children are financially dependent on you and may expire after they reach early adulthood. Your beneficiary will receive the death benefit if you pass before the policy expiration date.
Permanent life lasts a lifetime. This type of life insurance also comes with additional benefits such as “cash value” and steady premium rates. Cash value is when a portion of your premium goes towards an investing component.
This portion grows tax-deferred interest and can be accessed outside of death, meaning you can borrow against this amount during your lifetime if needed. Due to the benefits of this type of policy, it tends to be more expensive compared to term life.
How much life insurance do I need?
The amount you need will depend on multiple factors. Benefits are usually meant to replace lost income and cover your family’s needs if you weren’t there to support them. Here are some factors to consider:
· Annual Income
· Mortgage balance and other living expenses
· Number of children, each child increases the cost of childcare and education
· Debts and funeral expenses
· Existing insurance coverage and savings
Existing insurance coverage and savings are subtracted from your overall insurance needs to calculate what you would need currently. Speak with an insurance agent or representative to help you determine the insurance needs for you and your family.
With so many Americans and their families facing the potential threat of financial hardship - it is imperative to explore your options to see what is right for you, your family, and your budget. Including life insurance in your financial strategy can serve as a safety net to uphold your family's standard of living.
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