So you are about to have a new little one in your life? Congrats! This is a special time in any families' lives that should be treasured and celebrated. You also need to prepare for your bundle of joy financially the right way. Obviously, friends and family will probably throw you a baby shower to help supply you with some of the important physical items you need when welcoming a new baby, but what about the less obvious methods of preparation, like preparing a last will and testament and securing life insurance?
People don't like to think about how your children will be taken care of in the event that something tragic happens to you or your spouse. Take heart to ensure your little one will have the financial resources available throughout their upbringing. Once you make the proper plans to get life insurance, it's just another step to ensure that your child will be provided for in the future. Here are four life insurance tips to consider when purchasing your family life insurance plan.
"Train up a child in the way he should go; even when he is old he will not depart from it." Proverbs 22:6 ESV
Tip #1: Both Parents Need to Carry Life Insurance Coverage
Even if one parent plans on staying home for a bit or long term with a new baby, both of you need to have separate life insurance policies. Don't underestimate the financial value of the parent that stays home. This is a mistake many couples make when purchasing life insurance. The money will go to supporting the family if one spouse is gone, including child care costs.
Tip #2: Understand the Two Types of Life Insurance
There are two types of life insurance, "term life" and "permanent life." There is a very simple difference. Term life is temporary life insurance coverage that you purchase for a specific amount of time. For example, 10 or 20 years. This is in contrast to permanent (Whole Life) insurance that is bought with the idea you will keep it for the rest of your life. Term life is often a good option to both cover potential needs while balancing premium costs for a life insurance policy. Keep these options in mind if you get quotes for multiple policies, terms, or insurance types.
Tip #3: Figure out How Much Coverage You Need
Determining how much life insurance coverage you need is entirely up to you, but ideally, you want the policy to pay out over a few years. Think of that payout as covering household expenses for five years or even more. Plus, you want to add in costs of things like college for your child, or multiple children. This is very important because clearly, you want the family you leave behind to be cared for even if you are no longer around. Taking the pressure financially off of your living spouse or the person who will care for your children if you are gone is a great gift to leave to them. There are also many online life insurance calculators that may help you arrive at this number. If you have a child with special needs or circumstances, keep this in mind as you determine the need.
Tip #4: Don't Name Your Children as the Beneficiaries
As minors, your children won't be the best option to be beneficiaries on an insurance policy. Your primary beneficiary will most likely be your spouse. You can also name secondary or contingent beneficiaries. This is important for situations such as if you both passed at the same time. Beneficiaries can also be the caregiver you want to look after your children in the absence of both parents. The key here is to think carefully before choosing a name as beneficiary.
If you have questions about life insurance in general, it's always a good idea to talk to a financial planner to make sure all your needs are accounted for. You want to focus on that new child you are bringing into the world and sometimes having some help with life insurance will take a huge weight off your shoulders.
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