Life Insurance For New Parents

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    Life Insurance For New Parents: A Quick Guide

    Becoming a new parent is fun and exciting, but it also comes with new responsibilities. You need to make sure that you can protect your family and provide peace of mind, no matter what happens in the future.

    One option you can consider is getting life insurance. This is a tool that helps you make sure that your family can stay financially afloat for the next several years, even in the event of your death.

    In this guide, we'll discuss the basics of life insurance and how it can help new parents. We'll also answer the most frequently asked questions on the topic, including which policies and riders are best for expecting parents.

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    Benefits Of Life Insurance For New Parents

    On average, middle-income married couples can expect to spend about $233,610 to raise a child up to age 17. Usually, this money is spent on child-rearing, food, and childcare. You'll also have to set aside some money for your child's college education. This can cost about $17,797 at a public institution or $46,014 at a private institution.

    Given the amount of money you'll need to raise a baby into adulthood, you need to find ways to support your family, no matter what happens in the future. That's where life insurance comes in.

    A life policy is designed to pay out a death benefit if the insured person passes away within the coverage period. Depending on your contract with the life insurance company, the death benefit can range from $25,000 to $1,000,000.

    If you have a growing family, getting a policy should be one of your top priorities. Your family may be able to use proceeds from your policy for the following:

    • Cover daily living expenses
    • Cover your funeral costs
    • Pay off your mortgage
    • Pay off outstanding debt, like credit cards or student loans
    • Fund college education

    Depending on the type of policy you get, life insurance can also come with living benefits like disability income protection. This is an optional benefit that enables you to withdraw a part of your policy's face value if you've become disabled and therefore unable to work.

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    Types Of Life Insurance

    Before you purchase a life insurance policy, you'll need to decide which type is most ideal for you and your growing family. Life insurance can be divided into two categories: term and permanent life.

    Term Life Insurance

    Term life insurance is the most affordable type of life insurance. It provides coverage for a specific period of time, which can range from 1-30 years. Once the term ends, you have the option to renew it or convert it to a permanent policy (for a higher price). You also have the option to let the policy expire and lose coverage.

    Always remember to consult your life insurance agent or your financial planner regarding how long your term life insurance policy should last. Generally, you'll want a policy that outlasts your financial obligations or outstanding debts. For example, if you have a 30-year mortgage, you'll want a term policy that lasts for at least 30 years. 

    Being a new parent, you'll want a term life policy that will last until your children become financially independent. This can take about 20 years or more.

    Permanent Life Insurance

    Permanent life insurance lasts for the rest of the insured person's life, as long as premiums are paid. It's useful for people who have lifelong obligations, like having to support a child with a disability.

    Part of the premiums you pay for permanent life insurance is invested by the insurance company. That allows the policy to build a cash value, which grows over time. Once the policy's value is large enough, you can take out a loan against the policy. You can use this to finance investments or to cover any emergency expenses.

    One downside is that premiums for permanent life insurance are usually more expensive. If you're on a tight budget, term life policies will usually be enough for your growing family.

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    How Much Life Insurance Do Parents Need?

    One of the most important decisions you'll make when getting a life policy is choosing how much coverage to get. This is the amount of money that your loved ones will receive if you pass away during the coverage period.

    Most financial advisors recommend that you get a policy that pays out 10 to 12 times your annual salary. This will help ensure that your family will have enough money to stay financially afloat for the next decade after your death.

    In case you have debts or a mortgage, add the outstanding balance to the coverage amount as well. Finally, you should also add your children's expected college costs.

    Once you have a rough estimate of how much money you'll need to support your family for the next decade, you can subtract the amount of available savings you have. You can also subtract how much coverage you have through your employer's group life insurance policy. The resulting figure should give you insight into how much life insurance coverage you need.

    Don't forget to consult your financial planner or life insurance agent for more information. They should help you assess your insurance needs and compute the exact amount of coverage to get.

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    Life Insurance Tips For New Parents

    Buying a policy involves making a series of important decisions. To help you make sure you are getting the best deal possible, here are some tips for getting insurance:

    Buy Early

    Purchasing life insurance as soon as possible allows you to lock in the cheapest rate. That's because life insurance premiums become more expensive as you age. Developing health conditions, which are more common later in life, will also drive up the cost of your life insurance policy.

    Buy Policies For Both Parents

    Believe it or not, both parents need life insurance. Even if one of you is a stay-at-home parent, they can still benefit from getting life insurance coverage.

    Losing a stay-at-home mom or dad means that the surviving spouse will need to pay for baby or child care, housekeeping, and more. In fact, it's estimated that the economic contribution of a typical stay-at-home parent can reach up to $162,581 per year. The payout from a policy can help cover these expenses.

    Get Multiple Quotes

    Most people overestimate the cost of life insurance. The truth is, you can get term life insurance that fulfills all your life insurance needs at an affordable price.

    To ensure you're getting the best rates possible, work with an agent who will get you life insurance quotes from multiple companies. They can also provide useful advice on the best life insurance policy for you based on your family's needs and individual goals.

    Stack Multiple Policies

    You're free to purchase as many life policies as you want. This allows you to "stack" multiple term policies over time.

    If you're a new mom or dad, it's likely that you have a lot of financial obligations like your paying off your mortgage, buying food and groceries, and covering childcare. You can "stack" multiple life policies that can cover these expenses.

    Years later, as your obligations decrease, you can allow some of your term policies to expire. This usually happens when one of your children graduates from college and becomes financially independent.

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    FAQs On Life Insurance Policies

    Life insurance can get confusing for beginners, but we're here to help. Here are answers to some of the most commonly asked questions about life policies.

    Can I buy a policy after giving birth?

    Women who've given birth recently may have to put their application on hold until a few months after birth. Consult your agent to ask if they can find a company that can provide you with life insurance coverage as soon as possible.

    Who should I name as a beneficiary?

    The best option is to name your spouse as the policy's primary beneficiary. You can also name a legal guardian or a close relative as a contingent beneficiary. Contingent beneficiaries are second-in-line to receive the benefit in case all of the primary beneficiaries have passed away or are unwilling to make a claim.

    While it's tempting to choose your baby as a beneficiary, this is not the most advisable step to take. If your child is still a minor when you pass away, then the life insurance company can't disburse the death benefit until the court appoints a custodian.

    If you're a single mom or dad, the first option is to name your child's guardian. You can also consider forming a trust. This is a legal entity that can hold on to your assets until your child becomes an adult. You can ask an attorney to help you with forming a trust.

    Should my partner and I just buy joint insurance?

    A joint policy is a product that provides coverage for two persons, typically a married couple. If one of them passes away, the surviving spouse can claim the benefit from the insurance company.

    However, once the benefit is claimed, the policy is considered paid off. Once the surviving spouse passes away, their children can no longer claim money from the insurer.

    It's always more advisable to have one policy per parent. That way, your family can claim money from the insurer each time one spouse passes away. However, if buying two policies is cost-prohibitive, then a joint policy can be one of your life insurance options.

    Should I buy insurance for my children?

    Life insurance is designed to replace the income of a primary caregiver. Since most children don't earn income, a child policy is not a necessity.

    One thing you can consider is adding a child rider to your policy. This optional benefit allows you to claim a small benefit from the life insurance company if one of your children passes away. The benefit can range from $10,000 to $100,000.

    This amount is usually enough to cover your child's funeral expenses. It can also replace some of your income if you decide to take time off work to go to grieve and attend counseling.

    What factors affect the cost of insurance?

    Life insurance rates are calculated on a case-by-case basis, based on the following:

    • Age: The older you are, the more expensive your premiums will be.
    • Health: People with preexisting health conditions are charged with more expensive premiums. Belonging to a family with a history of hereditary illnesses may also drive up the cost of insurance.
    • Lifestyle: Individuals who engage in high-risk hobbies like skydiving or racing may end up paying more expensive premiums.
    • Smoker/non-smoker: Since smoking is one of the leading causes of lung cancer, being a smoker can significantly drive up the cost of your policy. Note that using any nicotine product, such as nicotine patches or gum, will also label you as a smoker.
    • Policy length and type: Whole life policies are more expensive than term policies because of the extended policy term length and cash value component. 

    Seek help from your insurance agent when comparing policies. They'll help you get the cheapest rates and buy the policy that's right for you.

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    FAQs On Life Insurance Policies

    Life insurance can get confusing for beginners, but we're here to help. Here are answers to some of the most commonly asked questions about life policies.

    Can I buy a policy after giving birth?

    Women who've given birth recently may have to put their application on hold until a few months after birth. Consult your agent to ask if they can find a company that can provide you with life insurance coverage as soon as possible.

    Who should I name as a beneficiary?

    The best option is to name your spouse as the policy's primary beneficiary. You can also name a legal guardian or a close relative as a contingent beneficiary. Contingent beneficiaries are second-in-line to receive the benefit in case all of the primary beneficiaries have passed away or are unwilling to make a claim.

    While it's tempting to choose your baby as a beneficiary, this is not the most advisable step to take. If your child is still a minor when you pass away, then the life insurance company can't disburse the death benefit until the court appoints a custodian.

    If you're a single mom or dad, the first option is to name your child's guardian. You can also consider forming a trust. This is a legal entity that can hold on to your assets until your child becomes an adult. You can ask an attorney to help you with forming a trust.

    Should my partner and I just buy joint insurance?

    A joint policy is a product that provides coverage for two persons, typically a married couple. If one of them passes away, the surviving spouse can claim the benefit from the insurance company.

    However, once the benefit is claimed, the policy is considered paid off. Once the surviving spouse passes away, their children can no longer claim money from the insurer.

    It's always more advisable to have one policy per parent. That way, your family can claim money from the insurer each time one spouse passes away. However, if buying two policies is cost-prohibitive, then a joint policy can be one of your life insurance options.

    Should I buy insurance for my children?

    Life insurance is designed to replace the income of a primary caregiver. Since most children don't earn income, a child policy is not a necessity.

    One thing you can consider is adding a child rider to your policy. This optional benefit allows you to claim a small benefit from the life insurance company if one of your children passes away. The benefit can range from $10,000 to $100,000.

    This amount is usually enough to cover your child's funeral expenses. It can also replace some of your income if you decide to take time off work to go to grieve and attend counseling.

    What factors affect the cost of insurance?

    Life insurance rates are calculated on a case-by-case basis, based on the following:

    • Age: The older you are, the more expensive your premiums will be.
    • Health: People with preexisting health conditions are charged with more expensive premiums. Belonging to a family with a history of hereditary illnesses may also drive up the cost of insurance.
    • Lifestyle: Individuals who engage in high-risk hobbies like skydiving or racing may end up paying more expensive premiums.
    • Smoker/non-smoker: Since smoking is one of the leading causes of lung cancer, being a smoker can significantly drive up the cost of your policy. Note that using any nicotine product, such as nicotine patches or gum, will also label you as a smoker.
    • Policy length and type: Whole life policies are more expensive than term policies because of the extended policy term length and cash value component. 

    Seek help from your insurance agent when comparing policies. They'll help you get the cheapest rates and buy the policy that's right for you.

    Written By Cameron McDowell
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