What Is Life Insurance?
The way life insurance works is pretty straightforward. You sign up for a policy, usually either through an independent carrier or your place of work. Each month, you pay a premium to maintain the insurance. When you sign up, you pick a beneficiary, typically your spouse, who will receive the insurance benefit should you pass away.
Who Should Get Life Insurance?
Many people think that life insurance is only for people who are employed, but this is not the case, especially when you are a parent who has children who are dependent on you and will be for the next 18-plus years. As you consider the financial make-up of your home, take into consideration the entire financial picture. If you and your spouse both work, you will want to ensure that each of your financial contributions are covered should one of you pass away before your children leave the nest. But even if one of you works part-time only or plans to be a stay-at-home parent once your baby is born, you need life insurance. Here’s why: the childcare a stay-at-home parent provides actually has a price tag, even though most of us don’t think of it that way. If you were to pass away while your children still need childcare, your spouse would likely have to pay for outside childcare—which can get hefty. Life insurance isn’t just for married couples, either. Single parents can buy life insurance too. Who to name as a beneficiary in this case? Well, you can name your child, but life insurance companies can’t pay benefits directly to minors. So you will need to name a custodian in this case, who can handle the money for your child and then transfer the remainder to your child when they reach adulthood.
How Much Life Insurance Do I Need?
Life insurance benefits are usually meant to be used to replace any income you would have contributed to your family if you hadn’t passed away. So as you consider the amount of life insurance you want to buy, you calculate things like:
Your monthly family financial contributions (if you are a stay-at-home parent or are planning to be one, you can calculate how much childcare would be needed to replace the work you do). How much you expect to save for your children’s education and college expenses. Other expenses you expect to come up while your children remain dependent on you, such as camp fees, extracurricular fees, etc. Most people add death taxes and funeral expenses to their calculations. You may also want to calculate things like potential raises at work, and factor in economic inflation in reference to your bills and other expenses.
What Kind of Life Insurance Do I Need?
Typically, there are two different kinds of life insurance: term life insurance and permanent life insurance. Most healthy younger parents will buy term life insurance, as it’s generally more affordable than permanent life insurance. And because you are focused in this case on a set period of time when your children will need financial support (say, their first 18-22 years), purchasing insurance with an expiration date might make sense for your family.
Term Life Insurance vs. Permanent Life Insurance
Term life Insurance:
Is temporary and only covers a set number of years.Most terms are 10-, 20-, or 30-year periods.If you pass away at any time before the term is up, your beneficiary will receive your death benefit.
Permanent Life Insurance:
Permanent life insurance lasts a lifetime.Permanent life insurance is usually more expensive than term life insurance.Your beneficiaries receive a payment when you pass away, but there is also a “cash value” assigned to the money, and you can borrow against this amount if needed.
Costs of Life Insurance
Most of us who sign up for term life insurance find that the policies are actually much more affordable than we expect them to be. If you are under about 40 years old (premium prices go up the older you are, so it’s wise to buy a plan when you are in your 20s or 30s!) and are in good health, you are less likely to pay an amount that breaks the bank.
How Do I Find Life Insurance?
Most people buy life insurance through their employer. In some cases, you can buy insurance for both yourself and your spouse through your employer. You can also buy life insurance through an insurance agent, through a professional organization you belong to, or a civic organization. Veterans may be able to buy life insurance through the VA’s life insurance program. As you consider where to buy your life insurance, here are a few things to keep in mind:
Check that the insurance company is licensed and is covered by your state’s guaranty fund. This ensures that your state will cover your benefit should the insurance company go out of business or default.Research the company’s complaints, and obtain their credit ratings.Read reviews from customers and ask friends and family members for personal reviews.Read your insurance company’s entire policy and make sure you understand all the terms of the policy. You should receive the policy within 60 days of signing up.Trust your gut: if the company’s policies and rates seem too good to be true, they probably are.
When To Buy Life Insurance
The sooner you buy your life insurance, the better, because as you get older, life insurance rates increase. Many families choose to buy life insurance while they are pregnant so that they have the peace of mind of knowing that their child will be protected from birth. Plus, the postpartum period will be a busy time, and it makes sense to check buying life insurance off the list while you have the time.
Adding Your Baby To Your Health Insurance
As you’ve got insurance on your mind, you are probably also wondering how to add your baby to your health insurance. That, too, is something that it makes sense to consider while you are pregnant. Here’s a brief synopsis of what to know about that:
You should reach out to your health insurance company before your baby is born to understand their protocols for adding your baby to your insurance. If you get health insurance through your job, you will need to contact your human resources department for more information about enrolling your child. After your baby’s birth, you will need to provide your baby’s birth certificate (and likely their social security number too) for them to be added to your insurance. Don’t worry—if your child needs medical attention before they are “officially” on your insurance, they will be covered, because as soon as their coverage starts, it’s retroactive to their birth.
A Word From Verywell
Before starting a family, you may have gotten away with not thinking much about life insurance. But once parenthood enters the picture, life insurance is definitely something you’ll want to strongly consider. After all, life doesn’t always go as planned, but providing for our children isn’t something that we ever want to take chances with. Think of it this way: The monthly cost of life insurance for most of us is equivalent to a few fancy coffee runs or a night or two of take-out. But the peace of mind something like life insurance can give you—and the real benefit it may have to your family should something catastrophic occur—is truly priceless.
