My husband and I recently welcomed our first child in July. During my pregnancy we started to seriously think about our futures with this new little human and after reading about how it is important to review your life insurance policies (click here), we decided to set up new life insurance policies. Becoming a new parent comes with its list of questions, below are some of the questions I had before setting up our life insurance policies that will hopefully help you.
Q: Why should parents buy Life Insurance?
A: Life Insurance plans can be used to replace income lost from a parent who passes away. A life insurance plan is a great asset to setup in the event something does happen to either parent. You have the comfort in knowing your children/spouse will have the financial stability they need.
Q: Are there different types of life insurance?
A: There are two main types of life insurance, term and whole. Term life insurance is set up for as little as five years or as many as 30 years. When the term is over, your coverage expires. Whole life insurance is for as long as you make payments and acts as a cash-value plan. Whole Life Insurance is typically 8-10 times more expensive than term. Term life insurance is considered ‘pure insurance’ so it is much more affordable than whole. Whole life insurance has potential tax benefits and acts more like an investment platform as it eventually builds cash value that can be withdrawn.
Q: How much life insurance do we need?
A: When thinking about the amount, it’s best to think about what would happen if one of the parent’s lost their life today. How much money would the other parent need to for the mortgage, bills, childcare, food, diapers, etc. It’s also good to think about how much they will need in the future for things like a college fund, retirement, etc. Our agents may suggest that setting up a plan that is 10-12 times your annual salary to start.
Q: Do both parents need life insurance?
A: Yes, both parents need life insurance to protect the family. Childcare, W2 income, cleaning, and countless other parental activities have value and would generate a financial loss in the event of one or both parents passing. This should be accounted for and covered by life insurance.
Q: Who should parents name as their beneficiaries?
A: This is a deeply personal question that we cannot answer for you. Some families name spouses as each other’s beneficiaries with their children as secondary beneficiaries. Others may name a family member designated to care for the children as a beneficiary. Still more others utilize a lawyer to arrange a trust to care for the children. The best bet is to have a conversation as a family and include professionals when it is time to put a plan in place.
Q: When should I get coverage?
A: It is cliché, but now! Rates are heavily influenced by your age and overall health. It is best to lock in your rates now before a health event.