As a new parent, you want to provide your child with everything they could ever need. Life Insurance is the ultimate safety net and it's essential that you have the right policy to make sure that your child will be taken care of, no matter what.
However, even though you know how important it is to have that protection, figuring out which life insurance policy to get, while also handling a newborn, might seem like an intimidating task.
We're here to show you that it doesn't have to be.
Here are the key questions you need to answer in order to figure out what the right life insurance policy is for you, as a new parent:
How Much Life Insurance Do Parents Need?It usually takes a middle-income family $233,000 to raise a child until the age of 17 (according to a 2017 study by the Department of Agriculture), and the cost of a four-year degree is estimated to be at least $205,000 by 2030 (An estimate done by the US Department of Education.) A $500,000 coverage per child is a very rough (and minimal) estimation of what you need to cover the basics.
However, every situation is different. In order to figure out your specific needs, you'll need to know how much you currently spend on expenses such as food, rent or mortgage, childcare, healthcare, clothing, summer camp; and how you think those expenses will continue to evolve as your child gets closer to adulthood.
Calculating all the above will help you understand the amount it will take for your child to maintain his/her current quality of living.
Should New Parents Get Term Life Insurance or Whole Life Insurance?The two most common types of life insurance are term life insurance and whole life insurance. Term life insurance provides insurance for a specific amount of time, for instance between 5, 15 or 30 years, while whole life insurance provides insurance throughout the lifespan of the insured. Term insurance is typically at least 75% cheaper than whole life insurance. It's usually the right choice for healthy young parents, since they'll get the right amount of coverage at an incredibly reasonable rate.
Which Parent Needs to Get Life Insurance?All new parents need life insurance! Even in a household where one person is the primary breadwinner and one person is primarily a stay at home caregiver. Apart from the obvious emotional hardship, childcare is expensive, and the need to replace the contributions of either parent is substantial.
Should Parents Name Young Children as Beneficiaries for Their Life Insurance?While a new parent's primary concern around getting a life insurance policy is the wellbeing of their child or children, making that child the policy's beneficiary is not the most direct way to get the money to your child. The life insurance company would hold the money until the child turns 18.
So, what do you need to do? In most cases, the spouse would be the primary beneficiary. If both parents were to die, however, a legal guardian for the children should be appointed as a contingent beneficiary. If you want your children to be the primary beneficiary, you can appoint a legal guardian for your kids until they turn 18.