Let’s cut to the chase: kids are expensive to raise. Getting your bundle of joy from the crib to college costs a lot of money. According to a study from the U.S. Department of Agriculture (USDA), an average middle-income family can expect to spend approximately $233,000 to raise a child through the age of 17. This number includes the cost of your home or apartment as well as daily necessities such as food and childcare. However, this doesn’t include higher education.
Add college to the mix, and your costs become higher. While your family might qualify for financial aid, it may not be enough to cover the rising costs of college.
Whether you’re already a parent or just starting a family, you may be wondering how life insurance can protect your loved ones in the event that you pass unexpectedly. As a guideline, make sure you select a coverage amount that covers your loved ones for the number of years that you expect them to rely on your income.
Do I really need life insurance?
Every parent should consider having life insurance. While you may have an existing life insurance policy through your employer, it may not be enough once you become a new parent. Life insurance gives parents peace of mind in knowing that their children will be provided for no matter what. As you expand your household, you may take on large debts, such as a mortgage or a new car. Life insurance is there to help protect your family in the long run, no matter what happens tomorrow or down the road.
Do stay-at-home parents need life insurance?
If you’re a stay-at-home parent, you should also consider taking on a life insurance policy. Why? Think of all the value you provide to your family as a stay-at-home parent. Replacing childcare alone could cost upwards of $16,000 per year. Add on a housekeeper, and it’s easy to see how a surviving parent would be left seriously struggling.
In fact, if a stay-at-home parent made an annual salary, it would amount to about $162,000, according to Salary.com.
All of those costs add up and can be especially daunting during a stressful time. Having a life insurance policy is another way to bridge the financial gap when your family needs it the most.
How do life insurance beneficiaries work?
A beneficiary is the person, persons or designated trust that receives your life insurance policy proceeds if you die while your policy is in force. As the policy owner, you designate your primary beneficiary (or beneficiaries) when you fill out your application.
For many parents, the primary beneficiary is usually your spouse, your life partner or your children. Once you choose a life insurance policy that best suits your family’s needs, you’ll have peace of mind knowing that you’ve taken a tremendous step to protect your family’s financial future.
What type of life insurance is best for new parents?
There are two basic types of life insurance: whole and term. Whole life insurance is permanent and stays in effect, as long as the premium is paid, typically for the entire life of the insured. Term life insurance provides life insurance coverage for a specific period of time.
When choosing the best plan for your family’s needs, consider your current financial situation. For example, if you’re a brand-new parent you might want a 30-year term life policy that provides coverage until your child reaches adulthood. If your kids are in college, you might only need a 10-year term to cover educational expenses and any other unexpected plans in case you pass before they finish school.
Of course, the best life insurance policy is the one that fits best with your situation and family needs.
How much life insurance do new parents need, and what will it cost?
There’s no one-size-fits-all answer to how much life insurance your family needs, especially if your family is growing.
A simple rule of thumb is to multiply your salary by 10 to replace lost income. Then, you’ll want to add on any debt you might have, including mortgage payments, estimated education costs, child and general household care, and other daily expenses. You may also want to add extra coverage that would help cover your spouse’s income for a year or two, so that the surviving parent wouldn’t have to worry about returning to work immediately while grieving.
If your spouse is a stay-at-home parent, consider adding a rough estimate of what their annual salary would be if they suddenly had to return to work.
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