How much life insurance should I buy?
Figuring out how much insurance you need should be based on what your family requires. Now that you have a baby on the way, it’s important to consider your child’s future should something happen to you. When determining how much life insurance to get, factor in the cost of caring for your child, as well as the cost of living for your family after you’ve gone. Add up your monthly bills and fixed expenses, and make a list of what you provide for your family. Include necessities like food and medical costs, but also discretionary funding and other quality-of-life needs.
If you have outstanding debt when you die, your family may have to become responsible for it when you pass on. This could be a mortgage that you signed with your spouse, credit card debt, or a student loan. You want to get enough coverage to help your beneficiaries pay off these loans without financial hardship.
College education costs
The cost of a college education for your children may seem like a long way off when you haven't even had your baby yet! But tuition is one of the largest expenses your kid will have. If you want to see them get a higher education and have better opportunities, you should plan for the costs of college in the future.
Your loved ones will need to pay for a funeral home, burial costs, a casket, a headstone or cremation, and other expenses. It adds up to thousands of dollars pretty quickly. It’s a good idea to include these expenses into your coverage so your family doesn’t have to worry about paying for it while they grieve.
When deciding how much life insurance you need for your new family, be sure to consider covering yourself, as well as your significant other. Although we typically think of life insurance as a necessity for the breadwinner of the family, stay-at-home parents should have coverage too. This will ensure that the valuable child-care services they provide can be replaced if they die.
What life insurance policy do I need?
There are two types of life insurance policies to consider – term and permanent.
Term life insurance
This form of life insurance will cover you for a specific, predetermined period. Should you die within that period and your policy is kept active, the insurance pays the death benefit to your beneficiaries. Term life is a great option for new parents because you can start a 20-year term and the policy will cover you until your child is an adult. Term life insurance is also typically cheaper than permanent life insurance.
Permanent life insurance
Unlike term life insurance, this policy option never expires. It covers an individual for life as long as the required premium payments are made and also combines a death benefit with a potential cash value component. Permanent life insurance is more expensive than term and is a bit more complex because of the cash value portion.
How do I find life insurance?
Most people purchase their life insurance through their employer. Talk to your employer’s HR department to find out what life insurance options are available for you and your family. You may find that what is offered through your employer isn’t enough or exactly what you need for your family. In those cases, working with a financial professional can help you find a more personal policy.
Life insurance is also available through an insurance company and you can buy multiple policies. While your employer may offer life insurance as a benefit, it may not give your family sufficient coverage, depending on your financial situation. Purchasing your own life insurance can increase your coverage and it isn't dependent on your job status, so you can continue the policy even if you find new employment.
Here are a few tips to remember when you consider where to buy:
Ask friends and relatives for financial professional recommendations.
Read customer reviews and research complaints about insurance companies you’re considering.
Make sure an insurance company is licensed and covered by your state’s guaranty fund to ensure your benefit will be covered if the company goes out of business.
Find and review the credit ratings for any potential life insurance company.
Review an insurance company’s policy and terms.
Ask a financial professional to help you understand an insurance company’s policies, so you know what to expect.
Do I need to buy a life insurance policy for my newborn?
Life insurance is financial protection that helps dependents cover the bills when a family breadwinner dies. Babies don’t provide financial support, so you probably don’t need to buy life insurance. However, you might consider taking out a policy on a child to cover the cost of his or her funeral expenses in the event of an unexpected death. A policy for a baby would also lock in premiums at a young age, protect your child’s insurability, and could be used for investment or savings for your child’s future expenses.
Many adult life insurance policies also offer child riders for a small fee each month. The rider will pay you a death benefit if your child passes away before a certain age – usually age 25 or until marriage. To get money through a rider you just have to demonstrate your child falls under the coverage age when filing a claim. There is usually no underwriting necessary. Your baby won’t even have to take a life insurance medical exam to get the coverage, but an insurer might ask a few health questions. High-risk children with certain pre-existing conditions may not qualify for coverage. One rider will generally cover all of your children.
If you think you might want a policy or a rider for your baby, it’s a good idea to discuss the options with a financial professional.
When should I buy life insurance?
When it comes to life insurance, the sooner you buy it the better. When you have a baby on the way it’s a good idea to set up your plan while you’re still pregnant so you have time to research your options. Once your baby is born, you will be quite busy caring for your bundle of joy and concentrating on a host of child-care issues and family needs. Checking life insurance off your list early will prevent you from forgetting about it, and more importantly, it will ensure your family is covered right away.
Courtesy of North American a Sammons Financial Company