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Protect your family: Life insurance tips for new parents

Congratulations, you had a baby! Between the snuggles and feedings, who has time to think about life insurance? And do you really need to?

Truth is, even though the need for life insurance seems far removed, as a new parent, it’s important to consider it. For the sake of your new child — and the financial security of your new family.

The good news is life insurance is more affordable than you may think and there are different kinds of insurance to fit your family’s needs.

How life insurance works 

Life insurance is an important financial safety net that provides an income tax-free death benefit to beneficiaries upon your death.1 You purchase the amount and type of coverage that fits your needs, pay premiums and your chosen beneficiaries receive the benefit. Beneficiaries can use the money to help with their everyday living expenses — such as mortgage payments or medical bills, education expenses, your funeral costs and more.

Life insurance — by the numbers 

According to a recent study, 70 percent of American consumers perceive a need for personal life insurance. The pandemic has made an impact – 31 percent of consumers say they’re more likely to buy insurance because of COVID-19. (Individual life insurance sales are at the highest recorded growth since 1983.2) However, despite all of this, just 52 percent of American adults have life insurance.

Many consumers overestimate how much life insurance costs. More than 50 percent of people think life insurance costs at least three times its actual amount. The fact is, the longer you wait to buy life insurance, the more it will cost you. A 40-year-old male will pay up to 36 percent more than a 30-year-old male.4

As the saying goes, the early bird gets the worm. Forty-five percent of millennials and 34% of Gen Z currently own life insurance.5

So, join the ranks of other parents who are protecting their loved ones’ financial well-being for when they pass away. The payout can cover burial and final expenses, help to replace lost wages and income, and leave an inheritance.

Life insurance options 

Now that you’ve decided life insurance is something your family and your peace of mind could use, think about why you want it – what do you want it to do for you?

First, you need to determine the reason you want life insurance. Is it to pay off the mortgage, your kids’ (or your) college education or other key costs your family may have? Or do you also wish to have the potential to accumulate some cash value that can grow tax-deferred? Your answer to these questions will determine whether term life insurance or permanent life insurance will better fit your needs. 

  • Term life insurance provides coverage for a set amount of time, such as 10, 20 or 30 years. If you die during the time period covered, the policy pays your beneficiary. This life insurance is generally cost-effective and good to have during the years you’re raising your children, building your savings and paying off debts. However, once the term expires there is no cash build-up or further benefits. You’re basically paying for a safety net (and peace of mind) during a set period of time.

  • Permanent life insurance offers lifelong coverage and may provide a component to help you accumulate cash value to pay for financial emergencies, specific goals and even provide you with some income during your retirement years. 

Keeping life insurance costs low

Many factors determine how much life insurance will cost. Typically, the younger you are the less you’ll need to pay for life insurance. That gives you all the more reason to buy insurance soon after you bring home your little one. 

Also, the healthier you are the less you’ll likely pay. Non-smokers and people who don’t partake in risky hobbies (put that parachute in storage) generally get a better price, too.

Take advantage of employer-provided life insurance 

These days it’s common for employers to offer group life insurance to their employees. It’s a popular — and easy — way for families to get coverage.

Although two-thirds of Americans rely on this supplemental life insurance, almost half of workers say they either don’t understand or only somewhat understand this employer-sponsored benefit.

Group insurance usually falls under term coverage, but some employers offer the ability to purchase additional supplemental life insurance as well. And the rates you pay for coverage are based on the overall health of a group, rather than just you individually. That can make group insurance more cost-effective than going out and buying life insurance on your own, depending on your age and your health.

Keep in mind that group life insurance might only cover a year’s salary when, in fact, you actually might need more like $1 million to cover everyday expenses, a mortgage, other bills, college expenses, and more in your absence.6  

The benefits of life insurance, for both parents

Your family will most likely benefit from both parents having life insurance policies. That means a stay-at-home parent should also consider getting life insurance – because his or her absence will likely be deeply felt on a monetary level even if he or she doesn’t earn an income. Just think about all the services these parents provide — including child care — at no cost to the family. 

The importance of naming of beneficiaries

Life insurance benefits are generally not governed by your will, so the best way to make sure your policy's benefits are paid to the people you intend is to make sure you've named a beneficiary

You want your young children to be protected financially in case something should happen to you. But this doesn’t mean you should name your minor child as a beneficiary.

If you do, your loved one may experience delays in receiving the money that’s designated for them and unwanted court dates. Instead consider designating an adult such as your spouse or another relative to distribute the money, or set up a trust. 

Watch them grow

Hopefully, you’ll be around for a long time to watch your family grow. 

It’s no surprise that children are expensive to raise. The cost of raising a child today to adulthood is $267,233 in 2021 dollars — not including the cost of college — for a middle-income, married couple, according to the U.S. Department of Agriculture. Of course, personal circumstances and choices can increase or decrease the total amount.  Would you or your partner be able to cover the costs should one of you unexpectedly pass away?7

Even though your child is just a baby — it’s a perfect time to determine the best life insurance options for your family, which is an important step to helping ensure your tomorrows are more secure. That way you can stay focused on what’s truly valuable now — banking memories with those who matter most. 

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1. If owner/insured are different, the death benefit will be paid upon death of the insured.

2. “LIMRA: Challenges Brought On by the Pandemic Highlight the Importance of Family,” limra.com, March 23, 2022.

3. Wood, Stephen; Leyes, Maggie; Scanlon, James T. “2021 Insurance Barometer Study,” limra.com, November 1, 2021. 

4. Gusner, Penny. “Average Life Insurance Rates of 2022,” forbes.com, March 26, 2022.

5. Stephen Wood; James T. Scanlon, M.S., HIA; Maggie Leyes (Life Happens), "LIMRA: 2022 Insurance Barometer Study," April 25, 2022.

6. Kilroy, Ashley; Metz, Jason. “5 Things To Know About Supplemental Life Insurance,” forbes.com, December 20, 2021. 

7. LaPonsie, Maryalene. “How Much Does It Cost to Raise a Child?” money.usnews.com, September 7, 2021.

Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.

Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods. 

Policy loans and withdrawals may create an adverse tax result in the event of lapse or policy surrender, and will reduce both the surrender value and death benefit. Withdrawals may be subject to taxation with the first fifteen years of the contract. You should consult your tax advisor when considering taking a policy loan or withdrawal.

 

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