If you have a baby on the way, you’ve likely spent the past several months preparing to welcome your bundle of joy into the world. In addition to decorating the nursery, stocking up on diapers and planning your parental leave, you may want to add “get life insurance” to your pre-baby to-do list.
Life insurance policies for both parents can help ensure a secure financial future for your growing family, according to the nonprofit Life Happens. If one parent were to die, life insurance benefits could be used to help replace that spouse’s income, pay off debts, cover living expenses for the family or pay for your child’s eventual college expenses.
But what type of insurance might be right for you and your partner? Here are some questions you might want to ask yourselves as you choose a life insurance policy:
How Much Insurance Do We Need?
Every family’s insurance needs are unique and can’t always be accurately determined by a set formula like “eight to 10 times your annual income,” according to Kiplinger. You can start with an online calculator.
Life insurance can provide income to help cover your family’s expenses if you’re gone. Thinking about the following questions can start to give you an idea of the value of a life insurance policy.
- If I passed away, would I want life insurance to help pay off my mortgage so my surviving spouse wouldn’t have to worry about housing expenses?
- What other debts (car loans, lines of credit, etc.) could life insurance help pay off to make my family’s living situation more secure if I were gone?
- Could I use life insurance benefits to cover my child’s college expenses if I passed away?
- Would I need life insurance to cover all my family’s living expenses if I died, or could my surviving spouse work to help cover costs?
Ultimately, you may want to work with a life insurance agent to help you decide how much insurance you need based on your current assets, future needs, financial priorities and more.
For How Long Will We Need Coverage?
Your family’s financial situation will determine the optimal length of your policy, as well as the type of policy you need, according to Kiplinger.
For instance, if you want your insurance to be in place for a set period of time — say until your new baby enters college or your 30-year mortgage is paid off — you may way to consider a term insurance policy.
On the other hand, if you need life insurance to protect you your entire life, as long as premiums are paid, you may want to consider a permanent insurance policy.
What Can We Afford?
You face a lot of new expenses when you begin raising children. If you’re concerned about being able to afford life insurance both now and down the road — perhaps in case one parent decides to quit working and stay at home — you may want to consider term insurance.
Once you choose the length of your insurance’s “term” (which is how long your policy remains in force), your monthly premiums typically remain the same until the end of your term so you can easily budget for them, according to the Insurance Information Institute (III). Also, term insurance is generally the most affordable type of life insurance, according to Consumer Reports.
If you can afford higher monthly premiums for insurance that can last a lifetime — rather than just a set term —permanent insurance may be an option to consider, according to the III. Another benefit of permanent insurance is that it builds up a cash value you can tap or borrow against* — for instance, if you need it to pay for unexpected medical expenses, says Kiplinger.
Do We Need Our Own Policy?
Your employer may already offer group life insurance as a benefit. However, you may want to consider purchasing additional insurance on your own. For one thing, your work-provided life insurance may not offer sufficient coverage for your family’s financial situation, Investopedia says. Additionally, when you purchase your own life policy, coverage isn’t dependent on your employment situation. In other words, you can take your life insurance policy with you if you change jobs.
As you plan for your growing family’s immediate needs, make time to plan for their future needs, too. Life insurance is a way to help make sure you’ll always take good care of your loved ones — even if the unexpected happens.
All insurance products are subject to terms, conditions and exclusions not described here; we can answer any questions you may have.