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 your1 death. 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
Unfortunately, not enough people are schooled in life insurance. According to a recent study by LIMRA, while 84 percent of Americans say that most people need life insurance, only 68 percent say they personally need it and only 59 percent own some form of it.2
Many consumers overestimate how much life insurance costs. More than 40 percent of Millennials overestimated the cost by five times. Despite this fact, many in this generation have life insurance — about 70 percent own it.3
Those who moved into adulthood in the midst of the Great Recession, are now having families of their own and are concerned about protecting their financial well-being.
The top three reasons Americans give for owning life insurance include covering burial and final expenses (91%), helping to replace lost wages/income of a wage earner (66%) and transferring wealth or leave an inheritance (63%).4
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 affordable 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.
However, nearly 40 percent of people don’t participate in life insurance benefits offered through their employer because they don’t think they need it or believe it’s worth the cost.5 But if they were to die unexpectantly, 53% say their family would have trouble paying living expenses either immediately or after several months.5
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 affordable than going out and buying life insurance on your own, depending on your age and your health.
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.
And it’s no surprise that children are expensive to raise. The cost of raising a child today is $233,610 — not including the cost of college — for a middle-income family, according to the U.S. Department of Agriculture.6 Would you or your partner be able to cover that should one of you unexpectedly pass away?
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.