When you’re a young, new parent with a full plate of responsibilities and a host of baby expenses, buying life insurance is probably not a priority.
You might want to reconsider that.
Term life insurance, which pays out a tax-free lump sum if the policyholder dies within the policy period, is an inexpensive way to protect your family’s financial future. Here are our top five reasons why new parents should get it now.
1. It's affordable
Even with a mountain of new baby costs, you can probably still swing a term life insurance policy. That’s because it’s not as expensive as you might think. In fact, when asked how much a $250,000 term life policy would be for a healthy 30-year-old, survey participants responded with amounts twice that of the actual cost, according to the 2016 Insurance Barometer Study by trade group LIMRA and the non-profit organization Life Happens. The reality: That 20-year term policy only costs about $160 a year, or $13 a month, according to Life Happens.
"People think it’s more expensive than it is for protection that they truly need," says Marvin Feldman, president and CEO of Life Happens.
2. The younger you are, the more you'll save
Generally speaking, buying a term policy when you’re young and healthy will save you money in the long-run. For example, a policy that costs $20 a month when purchased by a healthy 30-year-old could cost $40 or $50 a month at age 50. Life insurance policies will always get more expensive as you age, which is why now is the best time to buy.
3. It will protect your income
If you should pass away and leave behind a child and perhaps a spouse, your insurance policy will help replace your income so that your spouse can continue to meet financial obligations for your household and child. In fact, in just six months, half of U.S. households would feel the financial impact from the loss of a primary wage earner. More than a third would feel the impact in a month or less, according to the Insurance Barometer Study. Put it this way: One in three households would have immediate trouble paying living expenses if the primary wage earner were gone.
Out of all age groups, Millennial households are most at risk, stated the study.
Something else to think about: If you pass away, your life insurance policy will also help pay for your child’s daycare and college, says Andrew Comstock, president of Castlebar Asset Management in Leawood, Kansas.
4. It will offer protection for a stay-at-home parent.
It’s a misconception that a stay-at-home parent doesn’t need life insurance. If you’re the caregiver and you die, who’s going to take care of your child? Your surviving spouse probably has to stay at work and may still need to pay for childcare at the same time. With an insurance policy in place, your benefits can help cover these costs as well as other necessary expenses required to raise your child.
5. Your workplace policy isn't enough
Many companies offer group life insurance. While this is a great workplace benefit, the payout is often pretty low, about twice your base salary. This may be enough to provide for your young family. It also may fall short, especially if your spouse is a stay-at-home parent, you have a hefty mortgage and a college fund to consider. To that end, what happens if you lose your job or leave to work someplace that doesn’t offer life insurance? Your employer-provided life insurance policy doesn’t follow you when you leave your job. For this reason, your own term life insurance policy is the best way to make sure that you can take care of your growing family if something should happen to you.
Image: London Scout