Life Insurance For New Parents
Life insurance helps replaces your lost income if you die unexpectedly, making it a good idea for new parents and people with young children. Keep reading to learn more about the benefits of life insurance for new parents and their beneficiaries.
Why Both Parents Should Get Life Insurance
The death of a parent can leave a lot of financial uncertainty to the surviving spouse and children.
Funeral costs alone can cost upwards of $10,000. Without life insurance, your family may have to pay for this on top of the rest of their daily expenses.
In a two-parent household, both parents play an important financial role in raising a child, even if one parent is the traditional wage earner. Many couples with only one working parent will often only purchase life insurance on the working partner, ignoring the financial role the stay-at-home parent plays for the family. If the main caregiving parent passes away, the surviving parent will have to add the cost of childcare to their annual expenses, which can easily cost thousands of dollars per year.
Your Workplace Policy Probably Isn’t Enough
Life insurance is a common employee benefit offered by companies both large and small. But the policy’s death benefit might not be enough to adequately replace your income for as long as your family will need it.
Employers that offer coverage will typically pay once or twice your annual salary as a death benefit. In this example, if your family maintains their current standard of living, that money would get them through no more than two years before they could face financial challenges.
If you have a new child, you should consider purchasing enough life insurance to cover your child for at least the first 18 years of his or her life. You might also want to include the cost of college tuition. If your spouse doesn’t work, you might want to purchase enough to ensure he or she will be financially supported even after your child has grown.
Saving Money Buying Young
New parents buying term life insurance can access lower monthly premiums if they purchase a policy while they’re still young and healthy.
For example, a healthy 30-year-old male could purchase a 20-year life insurance policy from anywhere between $50 and $200 less per month than a healthy 40-year-old male (depending on the size of the death benefit). Buying young can lock in an affordable rate for years to come.
Some new parents fail to purchase a life insurance policy when they’re young because they think they can’t afford one, but a term life insurance policy may be cheaper than you think. LIMRA’s 2016 Insurance Barometer Study found that participants overestimated premiums for the average 20-year, $250,000 term life policy for a healthy 30-year-old by more than twice their actual cost.
Ways Your Child Can Use Life Insurance
If you pass away, your child and surviving partner will need a way to pay for their most important expenses after losing your source of income. Keep in mind, they have the ability to use the death benefit however they see fit.
Beyond common uses such as mortgage payments and college tuition, your loved ones can use a life insurance policy to pay for:
- Daily necessities
- Car repairs
- Medical bills
- School supplies
- Utilities payments
- Insurance premiums
- Your funeral costs
- Studying abroad
- Investing in the stock market
- Starting a business
The Types of Life Insurance
New parents should review several life insurance plan options before settling on a life insurance policy.
To learn more about the types of life insurance policies available for new parents, read through our guide.