Life insurance for new parents can provide protection for your family in case something bad happens to you. And if you’re young and healthy, it can also be pretty inexpensive.
Before you buy a policy, however, there are a few things you need to understand, and this guide will help you.
Why Life Insurance For New Parents Is A Necessity
According to the Pew Research Center, the number of stay-at-home parents is on the rise. If you’re in a single-income family as the breadwinner, your death could be financially devastating to your loved ones.
This will especially be the case when your kids are older, and your partner has been out of the workforce for years. At that time, getting a job with enough income to take care of a family would be challenging, if not impossible.
A life insurance policy can help you do one or all of the following:
- Replace some or all of your income for a time
- Pay off your mortgage or other debt
- Pay for funeral and other final expenses
- Cover the costs of your kids’ college education
With sufficient coverage, you can ensure that your family will be taken care of while your partner can start providing on his or her own.
That said, you might still want to get coverage if you’re both working or you’re the stay-at-home parent. Losing a partner and parent is a devastating experience, and your partner may want to take an extended leave from work to focus on the family.
And if you’re the stay-at-home parent, it’s important to understand the value of your contribution. For the record, Salary.com estimates that value at $112,962 per year.
To determine if and how much coverage you should have for income replacement, speak with your partner to come to a consensus. And since your partner will be the one left behind, his or her preferences should carry a little extra weight.
What Type Of Policy Should You Get?
There are two main types of life insurance: term and permanent. A good way to understand the differences between the two of them is to compare them to the decision to rent or buy a home.
Just like renting, term life insurance offers benefits while you’re paying for it. But once your term ends, those benefits end with it. In most cases, you don’t even get any of the money you paid for the policy back.
In contrast, permanent life insurance is like buying in that you can build up equity in your policy in the form of cash value. It grows slowly at first then exponentially the longer you hold onto the policy. You can borrow against that cash value, or you can get the full amount less applicable taxes if you surrender it.
The only aspect where this comparison fails is in pricing. According to Value Penguin, whole life, which is a form of permanent insurance, can cost as much as 10 times the cost of term insurance.
As a result, most young parents would be better off with an inexpensive term insurance policy.
How Much Coverage Do You Need?
Financial experts often recommend getting enough life insurance to cover 10 to 15 times your annual salary. But depending on your and your family’s needs, you may want more or less than that.
Here’s a quick summary of how to determine how much life insurance you need:
- Calculate your family’s monthly expenses then determine how many months or years you want to cover them.
- Add up how much you owe in debt.
- Calculate future college costs for each child and determine if and how much you want to cover.
- Get an estimate of funeral and other final expenses.
- Calculate and subtract your current assets that you can use to cover all these things.
Do You Need Life Insurance For Your Child?
Losing a child can be heart-wrenching, but the experience can be even more distressing if you don’t have enough cash to pay for final expenses.
If you haven’t already, you’ll likely receive offers in the mail to get whole life insurance on your kids. These policies are marketed as an opportunity to cover you in the case of death and also to set aside cash for college through cash value.
If that’s something you’re interested in, shop around before deciding on a policy. But also keep in mind that some insurance companies allow you to add very affordable coverage for your child as a rider on your policy, that remains the same cost regardless of the number of children you have.
So, if you want life insurance coverage for your child, look for an insurer for your own policy that offers that rider.
How To Get The Best Deal On Life Insurance For New Parents
Each life insurance company has its own criteria for determining insurance rates, so it’s important to shop around to see what kind of quotes you can get. This is especially important if you have a health condition, because some life insurance companies may have more favorable terms than others.
If you need help comparing life insurance rates, Leap Life’s team of licensed life insurance agents can do the job, and answer other questions you might have, and even ones you don’t know to ask. With this kind of guidance, you’ll be in a better position to get the coverage your family needs at an affordable price.