Having children is a very big responsibility, both in nurturing and teaching a child, but also in planning for their future. As new parents it is important to consider that in the event of an untimely death, life insurance can serve as a financial safety net to ensure there is money available to pay for everything from medical bills to a home mortgage and future education costs. Here are a few important factors which all new parents should consider regarding life insurance:
Do you and your partner have life insurance?
Becoming a parent is an important time to consider life insurance, or to assess whether your existing cover is sufficient. A life insurance policy would be able to pay out a lump sum to the surviving spouse if a family breadwinner were to die. In many cases, for example, this could make the difference between being able to stay in the family home, and having to sell up and move to cheaper accommodation. It might seem sensible just to cover whichever parent is providing the main source of income for your family. For example, if one of you is working while the other stays at home to look after your children. But think about the financial implications of the carer’s death. In a lot of cases this would force the breadwinner to give up work to look after the children. It is worth weighing up the benefits of a joint policy against two single policies.
How much will it cost?
The cost of life insurance does not depend on your credit rating, savings or assets. It is determined by your age and the results of a medical evaluation that is required every time you look for coverage. If you are in your 20s and keep healthy, you will pay less than when you are in your 30s and 40s.
What are your options?
Life insurance policies can vary a lot, but they generally fall under two categories: Term insurance and permanent insurance, which are often referred to as whole life insurance. With term insurance you pay a premium for a set period, commonly 10 years or 20 years, and your policy entitles you to a specific amount of money. Unless the policyholder dies, triggering a payout, any premiums paid are lost once the policy term ends. In contrast, whole life insurance policies cover insured individuals as long as they live. These policies also function as savings vehicle. A portion of the premiums paid for the policy are invested to provide a pool of money that the policyholder can access while they are still alive, these policies are generally more expensive than term life insurance. The other decision that you will have to make is how long you should be covered for. If you have just had your first child, a term of 25 years would cover until he or she reaches university age.
What are your coverage priorities?
Generally, an insurance agent will help you determine an appropriate coverage amount for the policy by examining some of the key costs your family will have in years to come, such as the cost of child care, education and the mortgage. Another approach is to figure out how much income you are expected to earn over your lifetime. Still, while it might be tempting to think of life insurance in terms of a dollar amount, it makes more financial sense to tie that amount to a goal, like paying off a mortgage or university fees.
Consult the professionals
Making sense of all the life insurance policies available on the market can be challenging. It is best to consult with a trusted insurance agent who can provide the most up-to-date rates and policy options available.
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