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How much life insurance do parents really need?

Est. 7 min read

A lot of parents like to spoil their kids. It’s instinct: maybe they’re just so darn cute that you can’t help showering them with gifts; maybe you like to reward them for a job well done; or maybe you just go a little overboard for their birthday or Christmas.

But how often do you spoil them with life insurance?

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Let’s make this clear – taking out a life insurance on your kid(s) isn’t a good idea. It’s unnecessary and typically a waste of money. Adding a child rider to your own policy? Maybe, if it makes sense. But the life insurance policy you take out on yourself really is for your kids (and for any other dependents). It exists so costs will be covered even if you’re not around to be the breadwinner anymore.

So the next time you’re checking that Christmas list twice, you should consider the gift of life insurance for your kids. But every parent doesn’t have the same life insurance needs. Here’s how you can decide what coverage you need, for parents and kids of every age.

The ladder strategy

Before we get started, let’s talk about general life insurance needs. Essentially, you need enough life insurance to cover all of your expenses for a given amount of time. That means savings, mortgage, everyday spending, and so on. We talk about how to determine your need here.

But your need decreases as you age. At one point, you have a 30-year mortgage; later on, you only need to cover 10 years. You probably don’t want to be paying for coverage you don’t need. That’s where the ladder strategy comes in.

You can read our full ladder strategy primer, but the basics go like this: instead of buying a single policy, you buy multiple separate policies. The total cost of a $500,000/10-year term policy, a $300,000/20-year policy, and a $200,000/30-year term policy is cheaper than a single $1,000,000/30-year term policy. As you reach new life and financial milestones, your coverage steps down; if you bought your policies when you were 30 years old, by the time you turn 50 you still have $200,000 worth of protection – enough to cover your expenses, but costing much less than a $1,000,000 policy that you needed at one point but is overkill now.

Using the ladder strategy to save money on life insurance

As you read through the following sections, keep the ladder strategy in mind as a way to maintain the necessary coverage at every stage of parenthood while saving up to half the cost over the 30 or so years you may need it.

Life insurance needs for new and expecting parents

Whether you’ve just had your first child or have one on the way, you’re in for a long journey. Rewarding, sure, but you need to be prepared for 18 years of expenses on top of all those family-album-worthy moments.

Your first priority is probably the day-to-day expenses of raising a baby. Babies eat up money as fast as they poop or spit out everything else. Diapers, toys, food, formula, clothes they’ll outgrow in a month…that all adds up. Then you have to extrapolate how much those little darlings will cost until you send them off to college: almost $250,000 over 18 years.

Then, don’t forget about college. The good news is that you can get started saving early with a 529 account. There are lots of cool things you can do with them, and they’re one of our favorite ways to save for college. Saving when your kids are young means interest has more time to compound, so you won’t need to cover as big of a bill later on in life.

And don’t forget about your mortgage! Starting a family, you might also be on the verge of making a house into a home. If you want your family to be able to make mortgage payments and stay in that home for the next few decades, factor your mortgage into your life insurance needs.

If you’re an expecting mother buying life insurance, we’ve got a trick for you: either apply in your first trimester, or wait a few months until after you’ve delivered. Life insurance companies will set your rates based on your health at the time of application. That means weight gain and gestational diabetes will be taken into account, even though those symptoms may be temporary.

Life insurance needs for parents with teens

Maybe you don’t have teens, but if your child isn’t a baby any longer but still hasn’t graduated college, you fall into this group.

In these years, you have a lot of the same expenses you have previously, just…less. (Unless you had another child in the meantime. Then you need to reassess things.) You’ve started saving for retirement, you’ve paid off a lot of your mortgage, maybe you’ve gotten a higher-paying job. These costs are still there, but use the ladder strategy to decide if you need as much coverage as you once did.

The elephant in the room? There’s still college to think about.

Like we talked about earlier, if you started saving with a 529 plan when your child was young, you might be well on your way to paying for tuition – or maybe not, considering how quickly college costs are rising. If you’ve only just started, you have a lot of ground to make up. Take into account how much you’ll be able to put toward college savings every month or year, what your goal needs to be, and how much of your life insurance death benefit you need to go toward that. If you still have a lot of saving to do, college costs may eat up a disproportionate amount of the death benefit, and you still want to leave room for those other expenses.

Life insurance needs for empty-nesters

The life insurance coverage you need once the kids are gone depends on your age. You might have a couple of decades to go until you retire, or it might be right around the corner. But now’s the time when you can focus on you.

Even if you have fewer dependents when the kids are independent, you might still have a major one: your spouse. It’s great if you’ve been saving for retirement with IRAs or 401(k)s, but if you’re only, say, 50 when you become an empty nester, you likely still have at least a decade before you retire – and that means a decade’s worth of saving and compound interest you need to take advantage of.

That means that life insurance is still important. If you have a goal for a retirement amount, first of all, congratulations! Second of all, you probably factored in those intervening years before you reached your goal. If you die at 55 and were planning on saving until you were 65…well, that leaves a little bit of a gap in your plans.

PolicyGenius life insurance quotes

Life insurance can fill that gap. If the kids are gone and the mortgage is paid off but you’re still striving for retirement, don’t discount the role that life insurance can play. You might not need as much coverage – something we talked about with the ladder strategy – but every little bit can help you secure your golden years.

As a side note: don’t discount the life insurance safety net you’ll need until you’re sure your nest is absolutely empty. I don’t mean you’re living in a horror movie and there’s someone in the house that you don’t know about. I mean something that’s equally as scary to some parents: the boomerang kid. It’s not uncommon for kids to move back home after they graduate college, so that can add some unexpected expenses to your budget.

Make sure your kids are actually independent before you write them off. The last thing you want is to downsize your budget and then realize that your kid is pulling a Rory in the Netflix Gilmore Girls revival and crashing in their childhood bed again.

You might also have other, non-children people who are depending on you at this point in your life – namely, aging parents or other elderly relatives. Long-term care insurance can help cover the costs, but family members caring for sick and elderly relatives was at 40% in 2013. Life insurance can protect relatives outside of your children if you die and they rely on you for caregiving expenses.

Also, don’t discount what life insurance can do for you beyond just covering expenses. Maybe you want to leave an inheritance for your kids, or you want to leave money to that zoo or museum your family has fond memories of. You can leave your death benefit to basically anyone or anything, so even if you aren’t paying for your kids’ expenses anymore, you might want a life insurance policy to leave a financial bequeathment to them.

Everyone’s life insurance need will be different at different points in their lives, but the important thing to note is that your need will change over time. You just need to calculate (to the best of your abilities, of course) how it’ll change. Keep in mind what you need to pay for, and when, and don’t forget about the ladder strategy. It’ll help you maintain the coverage you need to protect your family while making it affordable to do so along the way.

Published on November 30, 2016

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Colin Lalley writes for PolicyGenius, a digital insurance brokerage trying to make sense of insurance for consumers. He previously wrote for Lulu Press.
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