There is nothing more exciting and frightening than becoming a parent for the first time. From the moment you find out you’re expecting, the parenthood adventure begins. From baby showers to Lamaze class, it’s all part of the preparation game. This is also the time when most new parents prepare financially by purchasing life insurance.
When you buy life insurance, you’re basically paying for peace of mind that in the unlikely event of your death, your loved ones will be taken care of financially. Life insurance can ensure that funeral costs, medical bills, mortgage, college, or anything else you plan for can be paid off if you, as the policyholder were to pass away. Sure, it’s not something any of us like to think about, especially if you’re getting ready to welcome your new bundle of joy into the world, but hey, life happens, and if the unexpected happens, you’ll want to make sure your loved ones are taken care of and aren’t left with a pile of bills.
So, whether you’re a new parent, or preparing to become one, here are five tips to buying life insurance:
1. Know the difference between term life insurance vs whole life insurance
Generally, life insurance falls under two categories: term life insurance and whole life insurance.
Term life insurance provides coverage at a fixed rate for a limited period of time, usually 10, 20 or 30 years. If you pass away while the policy is active, then your beneficiaries get the amount for which you’re insured. If the policy expires, then you’ll need to renew it again once it does. Term life insurance is usually recommended for younger families with kids because it covers a set period of time with affordable premiums.
Whole life insurance, or permanent insurance covers the policyholder for as long as they’re alive. The premiums for this type of insurance are higher than term life insurance, but a portion of the funds goes into a tax-deferred savings account which can be accessed by the policyholder if needed, while they’re still alive. However, many experts recommend that younger families avoid whole life insurance because the premiums are very expensive compared to term life insurance, and it can take longer for a whole life policy to accumulate a significant cash value. It’s better for younger families to take advantage of the cheaper rates term life insurance offers them, and have savings left over to invest or use as an emergency fund.
2. Get your coverage priorities in order
Once you’ve decided what type of life insurance is right for your family, the next step is to determine your coverage priorities. You can approach this in one of two ways: by evaluating your family’s key costs in the next couple of year, such as tuition, child care, mortgage, college, etc, or you can purchase.
Some financial experts however, recommend that you have a specific goal in mind for each policy: such as paying off your mortgage, paying off your kid’s college tuition, etc. Once you figure out what your priorities are and what you’d like your policy to pay for, then you’ll have a better idea on how much coverage you’ll need.
3. Buy life insurance while you’re young
The cost of life insurance is determined by your age and health. Buying life insurance in your 20’s is much cheaper than buying it in your 30’s, and buying it in your 30’s is cheaper than in your 40’s, and so on. If you’re young and healthy, then the time to buy life insurance is right now! Your medical situation can change at any time and an unwanted diagnosis can disqualify you from obtaining life insurance later down the line.
4. Both parents should be insured
Whether both spouses work, or one stays home to take care of the kids, both parents should have life insurance. Many couples only insure the spouse with the paying job and that can be a big financial mistake. Families should consider purchasing life insurance for the stay-at-home parent as well. If they were to pass away, the policy can help cover the cost of services they generally provide on a daily basis such as child-care, cleaning the house, cooking, laundry, etc.
5. Talk to an insurance expert
Purchasing life insurance is very important in insuring your family’s financial future but it can be confusing at times. This is why it’s recommended to talk to an insurance expert, who can personalize a policy to fit your new family’s needs and provide you with the most competitive rates. If you have any questions or are looking into buying a life insurance policy, talk to one of our Freeway Insurance experts today!