A guide to life insurance for new parents
Parents have the incredible and challenging job of caring for every imaginable need of their children—and that includes their financial needs. Providing your children with enough money may be one of the most important steps you can take to protect your child's future if you're no longer around. Life insurance can help.
How much life insurance do new parents need?
While price may be a key factor as you shop for life insurance coverage, you may also want to consider insurance that will help put your children in the best position to succeed. Even if you can’t afford as much life insurance as you want, any amount of insurance coverage may be worth considering. The important thing is to leave behind some degree of financial assistance. Here are a few things to keep in mind when deciding how much insurance to purchase.
Consider how many dependents you have
The more children you leave behind, the more life insurance you may want to own. Parents sometimes purchase life insurance around their first child's birth but then forget to increase their insurance as the family's size increases. Typically, any time there's a change in your life, you should reexamine your life insurance needs.
Factor in the cost of replacing your income
The general rule is to multiply your yearly income by seven. Of course, you can multiply by a higher number if you prefer to leave behind even more. But once again, if you can’t afford much life insurance, you should still consider purchasing what you can.
But, what if you're a stay-at-home parent without an outside income? Think about the cost of replacing all the services you provide for your family, including childcare, cooking, housekeeping, tutoring, and transportation. Estimate the salary someone would earn for performing those tasks, then multiply that number by seven or more.
If you are a single parent, life insurance may take on an even greater importance, especially if you are your children's only source of income.
Calculate your outstanding debt
Will you leave behind a house with a mortgage? If so, you may want enough life insurance to allow your family to continue to make those monthly house payments.
Take a good look around your house. Are you paying for appliances, equipment, furniture, or other items? You may want to make sure that your family will also be able to pay for these.
Estimate the price of your children's education
Do you expect your kids to attend college? Will they receive two years of education or four? Do they plan to enter a field where they will need more than four years? Will they attend a state college or a private school?
It's true that you're not likely to have the answers to these questions when your children are small, but these are important questions to consider when purchasing life insurance. Life insurance is usually less expensive the younger you are, so it can be wise to purchase it early. Later, as the kids grow and their education and career goals become clearer, you can typically adjust your life insurance coverage as needed.
Do both parents need life insurance?
Sometimes parents wrongly believe that only the parent who makes more money needs life insurance. Thinking that way limits your opportunity to help your children.
If the parent who doesn't earn an income (or earns less out of the two parents) dies with a life insurance policy, that parent may be more likely to significantly contribute to the children's future by leaving enough money to help with debts and education. This money can help make it easier for the surviving parent and possibly allow that parent to spend more time with the children during the grieving process.
What types of life insurance are available?
The two types of life insurance that you're most likely to hear about are term life insurance and whole life insurance:
- Term Life Insurance
Term life insurance lasts for a set number of years, as long as you pay your monthly premiums and uphold the terms of the contract. You can choose a plan that lasts for 10, 20, or more years. If you die during that period, the insurance company pays your family the value of the insurance. As you approach the end of your term, you may be able to renew your insurance policy for additional years.
- Whole Life Insurance
Whole life insurance doesn't automatically expire like term life. Whole life insurance lasts your entire (or "whole") life as long as you pay your monthly premiums. It may also include a program where part of the money you pay each month is placed in a cash account that gains interest.
Life insurance can help protect your children
Life insurance can be an incredible, final gift to your family because it allows you to continue to provide for your children after you're gone. Life insurance can play such a key role in your family's future that it can be worth purchasing even if you have to choose a life insurance policy that's smaller than the one you would prefer. After all, anything that you can leave behind for your kids will likely be appreciated.
Call or contact TruStage today to find the type of insurance that's best for you. Whether you prefer term life insurance or whole life insurance, TruStage can help you provide for the future of your children.