7 things parents need to know about life insurance
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Being a parent is incredibly rewarding — or challenging, depending on the time of day. Policygenius can’t pick up the kids from soccer practice, but we can help cross a big item off your parental to-do list: life insurance. Here are seven things parents need to know to get — and keep — their families protected.
“Term life or whole life?” It’s a question that stops many policy-hunting parents in their tracks — and understandably so. Life insurance jargon is … well, jargon. But, once you get passed the unfamiliar terminology, the choice is pretty straightforward.
Term life insurance is pure life insurance: It covers you for a period of time, usually 10, 20 or 30 years, then expires. Whole life insurance stays in effect your whole life and comes with a forced-savings vehicle, known as the “cash-value component”. Whole life can be useful if you have a complex, high net worth estate, but it's (often prohibitively) expensive. Policies can cost up to 4x the price of term life … which is one of the big reasons why term insurance is the right choice for most shoppers.
Metaphorically speaking, that is. Allow us to explain: You’re getting life insurance so your family can pay the bills in your absence, but how long do you expect them to depend on your income? That answer — no doubt influenced by your child’s age — can help you settle on a policy term.
As for coverage limits, tally the expenses you want or need to cover, including replacement income, child care, debt, funeral expenses and — if you were planning to cover your kid’s higher education — college costs. That should give you a solid estimate, but you can also tap our life insurance calculator for a tailored recommendation.
Parents feel a lot of pressure to get the choices they’re making for their children right, but no one is expecting you to predict the future when purchasing a life insurance policy. If your coverage needs change down the road (for instance, you have another baby), you can buy more coverage. In fact, people commonly use a strategy called “laddering” to keep their families protected. Laddering involves stacking multiple term life insurance policies on top of each other. Each ends at a different time, allowing you to gradually reduce coverage while still locking in low rates while young and healthy.
There are other ways to work some wiggle-room into your life insurance policy. For instance, most term life insurance comes with a conversion rider that allows you to transform your term policy into a whole policy without going through underwriting again. And a guaranteed insurability rider lets you increase the size of your death benefit without taking another medical exam at certain points in time. Ask an agent or broker about these or other options if you’re having a hard time deciding on specific policy features.
Most state laws prohibit life insurance companies from paying claims to minors. So, if you list a child as your beneficiary and pass away before they come of age, you’re pretty much guaranteeing the payout will get delayed by a ton of red tape. The short take: A probate court needs to appoint a guardian and that person controls of the death benefit until your child turns 18 or 21.
You can bypass a bureaucratic nightmare by naming a Uniform Transfer to Minors Act (UTMA) custodian, setting up a trust or naming a reliable adult you trust as your beneficiary instead. We’ve got more on your major options for naming a child as your beneficiary here.
After all, you’re in this together. And, even if your spouse isn’t making an income, they’re probably providing child care or handling other business you’d have to pay for in their absence. Spouses have a few options when it comes to buying life insurance. They can opt for separate policies or buy a joint policy. Stay-at-home parents can get coverage via spousal rider. Sounds overwhelming, we know, but you can save time and hassle by shopping for policies together. (We can help you both easily compare life insurance quotes across carriers here.)
Apologies for ending on a dour note, but parents are likely to run across a pitch for child life insurance at some point. And, well, you shouldn’t feel compelled to buy some.
Life insurance helps dependents cover the bills if a caretaker dies. A child isn’t a breadwinner, so there’s no income to protect. And, while life insurance rates go up as a person ages, the odds of your child getting priced out of a policy when they need one are low. Better to put those premium dollars to one of your many child care expenses.
Disclaimer: Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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