Insurance Checkup: A New Child

Mother sharing the joy of her new born

Congratulations on the new addition to your family! If you are wondering what the implications are with respect to life insurance, here are a few pointers to consider.

Determine your insurance needs

One of the first things you will need to decide is how much coverage you might need. Many insurance professionals suggest 6 to 10 times your annual income as a rule of thumb. The USDA estimates the cost of raising a child from birth to age 17 exceeds $250,000 — not including higher education — over the lifetime of the child.1

Since no two families have the same needs, consider using an online calculator to estimate your needs.

Plan ahead to protect your family

Try to anticipate what your family’s needs will be down the road.

Here are some questions to ask yourself:

  • Will our family grow?
  • Will my dependents need money for more than basic needs, such as education?
  • Is there a mortgage or other debts that I want the policy to pay off?

If you can answer yes to any of these questions, you may want to err on the high end to be safe. It is relatively easy to decrease coverage later on if you need to. However, increasing your coverage can be a challenge — and more costly — as you age; especially if your health declines.

Know how long you might need insurance

If you estimate you will need the insurance only long enough to raise one child to adulthood, you may only need the policy for about 20 years. More children may mean that you need insurance for a longer timeframe.

Decide on the type of insurance

Term insurance is designed to last for a specified number of years; whereas, permanent insurance can be carried for your entire life.

For growing families, term insurance is generally considered more practical since premiums tend to be lower than permanent insurance for a comparable level of coverage. If you have permanent needs, such as a child with special needs or business interests to protect, a permanent life insurance policy may make more sense.

Choose your beneficiary wisely

Before naming your child(ren) as beneficiary, you should know that in many states minor children cannot take control of money paid out by a life insurance policy. For that reason, it is usually more appropriate to name the adult who would care for your children after your passing as the beneficiary — presumably your spouse, partner or designated guardian.

Think twice before insuring your child(ren)

If you are thinking about getting a policy for your child, consider what the needs are. In many cases, the only need for life insurance on a child is a relatively small amount to cover final expenses in the event of unexpected death.

When a new child comes along, take a close look at your life insurance picture. With proper planning now, you can make sure your family’s financial needs are met now and into the future.

1Source: USDA Center for Policy and Promotion 2010 “Expenditures on Children By Families” Report.

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