Whether married, coupled, or single, welcoming a new baby into your family means you are adjusting in myriad ways to make the well-being of your baby a priority.
You know you are responsible for your baby’s health and development, and here are some tips for new parents from the office of a life insurance lawyer in Philadelphia that will help you cover all of your bases.
But have you considered what would happen to your baby if something happens to you?
This article will explain how you can use life insurance to provide for your family’s needs should something happen to the primary breadwinner, assuming that person is you, your spouse or partner, or your ex.
How Does Life Insurance Work?
In general, to purchase a term life insurance policy, you will complete an initial application and medical questionnaire, and in some cases, take a medical exam.
Be sure to disclose all past and present medical conditions, surgeries, and medications, as well as lifestyle habits such as alcohol use.
These will affect your risk assessment and may raise the amount you will pay in premiums, however, failing to disclose these might allow the insurance company to deny your beneficiaries’ claims due to misrepresentation.
Your insurance company will assess your application and then offer you coverage in your desired amount for a set term of 10, 20, 25, or 30 years.
You will pay monthly premiums for that coverage throughout the term.
If you die during the term, your beneficiary or beneficiaries will receive a payment in the amount of the coverage you purchased, called the death benefit. If you survive the term, there is no cash value to the policy.
Term Life Insurance vs. Whole Life Insurance – What’s the Difference?
Term life insurance differs from whole life insurance in that a term life policy does not accrue cash value, and whole life does.
Whole life policies are usually purchased as an investment vehicle by high-worth individuals, as the premiums as well as the fees and costs to administer the policy can be prohibitively high.
This article will address term life insurance only.
Life Insurance Coverage for the Primary Breadwinner
If you have a new baby, you need to consider how to provide for the baby’s future financial needs should something happen to the primary breadwinner.
Those needs will include housing, food, clothing, educational and child care expenses, healthcare copays, and recreation.
If you and your spouse or partner are raising your baby together, then the primary breadwinner should be insured in an amount that will replace that income. The insured names the other parent as the beneficiary of the policy.
For example, if you have a new baby, you might ladder overlapping term life insurance policies in the following way:
- Policy #1: a 25-year policy at $100,000
- Policy #2: a 15-year policy at $200,000
- Policy #3: a 10-year policy at $300,000
Your family will need more money if the primary breadwinner dies sooner rather than later, and these policies provide for that.
If the primary breadwinner dies within ten years, the family receives $600,000 for ongoing expenses while the child is still under the age of ten and being raised and educated.
If the primary breadwinner dies within fifteen years, the family receives $300,000 for that 15-year-old’s needs, including college.
Should the primary breadwinner die within 25 years, the family receives $100,000, which might help with college and graduate school.
Why have multiple policies? Because in this example, you would pay much more in premiums if you took out one 25-year policy for $600,000, and you don’t need that much coverage later in your child’s life. Instead, use the laddering technique to allow policies to expire as your child grows and you do not need that much coverage.
Of course, if there are more children or the primary breadwinner wants to provide more or less coverage, that is entirely up to you and your family. The needs of every family differ.
Single Parents and Life Insurance
As a single parent, you must juggle work, the needs of your children, and your needs. There are ways to blend these three and give your children the time and attention they need.
The last thing you need to worry about is whether your children will be provided for if something happens to you.
Divorce, Child Support, and Life Insurance
If you are divorced and your ex is paying child support, there may be court-ordered life insurance naming you as the beneficiary to insure your income stream.
However, if the court has not ordered life insurance coverage, you each should be insured.
Why? If you have physical custody of your child, you need to insure yourself in an amount that will provide housing, food, clothing, and child care in excess of what your ex pays.
That way, if he or she must take custody of your child, that money is available to replace what you provided, monetarily at least.
The child support obligor should be insured in an amount that will replace the support paid. That amount can be calculated according to the payment amount, the age of your child now, and the age of majority when support ceases.
You can use the laddering technique to layer multiple policies and provide more coverage early on, and less coverage as your child ages.
Raising Your Child Alone
If your child’s other parent is not in the picture or is not contributing financially, you need to have life insurance coverage on yourself to provide for your child should the worst occur.
Keep in mind that in most states, you cannot name a minor child as a beneficiary to a life insurance policy.
When this occurs, a judge must appoint a guardian to your child to manage your child’s finances. Wouldn’t you rather name that person yourself?
You can, if you establish a trust and name the trust as beneficiary. That way, you name a trusted family member or friend as the trustee and guardian, and that person manages your child’s finances and cares for him or her.
An estate-planning attorney can help you draw up these documents.
Final Expense Insurance
You’ve probably heard of the benefits of final expense insurance, and frankly, everyone should have this whether they are a parent or not.
Final expense insurance provides for all of the costs associated with the funeral and burial and in some cases, pays for the remaining debts of the insured. Final expense insurance is usually very inexpensive, providing coverage in the amount of $5,000 or $10,000, and rarely requires a medical exam.
Talk frankly with your spouse, partner, or ex about your family’s insurance needs.
Of course, you hope you never need it, but having it means it will be there in a worst-case scenario and provide you with peace of mind in the meantime.