Becoming a new parent is an exciting, challenging and somewhat overwhelming experience. When your child is born, you are suddenly responsible for a whole new little person. Immediately, your top priority becomes caring for and protecting your child.
Life insurance plays an important role in protecting your baby boy or girl. It is a way to ensure financial support should something unexpected happen to you. For first-time buyers, finding the right life insurance coverage can be a daunting process. Our experienced agents are happy to help.
Why do new parents need life insurance?
When you become a parent, you become responsible not only for yourself, but also for the little person who relies on you to survive. The cost of raising a child to adulthood, just for food, shelter and childcare, runs into the hundreds of thousands of dollars. This does not include the costs of higher education. Life insurance can help protect your child̵7;s future financial needs if you are no longer around to provide for them.
What type of life insurance is best for your family?
The two main types of life insurance are term life insurance and permanent life insurance.
Term life insurance
This is usually the cheapest option. It provides life insurance coverage for a specific period, usually 10, 20 or 30 years. The benefits of this type of policy include the following:
- Policyholders can choose the length of the policy.
- Term is more affordable than permanent life insurance and can be a good choice for new parents on a budget.
- It may be the best option if you have a specific financial goal in mind, such as funding your child’s higher education or paying off your mortgage.
Permanent life insurance
Permanent life insurance costs more than term life insurance, but it also offers important benefits. Your cover lasts for life – it doesn’t expire at the end of a set period. Your beneficiaries will receive a death benefit, regardless of when you die. It also works as an investment vehicle. Permanent life insurance builds cash value over time, and you can borrow against it.
How much life insurance should you buy?
Generally speaking, life insurance can provide death benefits of from $100,000 to $1 million or more. How much life insurance you need depends on your financial situation and your goals. As a starting point, assess what financial support your family would need if you were no longer there. Factor in:
- Expenses that would need to be paid immediately after your passing: This may include debt obligations and funeral and burial costs.
- Money your family would need to maintain their current lifestyle: Calculate this amount by adding up your annual income, savings, retirement savings and investments. Include future financial expenses, such as your child’s college education.
- How much your partner earns: If you’re raising your child with a spouse or partner, deduct his or her income, minus income taxes, from the total life insurance amount.
For a rough estimate of how much life insurance to buy, multiply your annual income by 10.