Life Insurance for Young Families

Life Insurance for Young Families

| October 23, 2019

It’s the Debbie Downer subject of the financial world. Talking about life insurance means talking about death, and that’s not exactly fun. However, purchasing life insurance is probably the biggest step you can take to make sure your loved ones are taken care of should something happen to you. Life insurance is something every parent should consider having—whether you’re a stay-at-home parent, entrepreneur, or CEO. Think about the value of everything you do. It isn’t just about replacing a salary; it’s also about making sure your family’s needs are taken care of when you’re gone. Life insurance won’t soften the emotional blow, but it will help your family financially during their time of grief.

Term life insurance is the most common and least ex­pensive option. It’s a basic policy that provides a death benefit during the timeframe you choose to pay for, such as 10, 20 or 30 years. Your premiums stay the same during that period, so you can budget without surprises. At the end of the term, you can let the policy lapse or get a new policy. Of course, with this kind of life insurance, there’s a good chance you pay the premiums for the entire “term” and not use it. Congrats! That means you’re still alive! This policy is a good option for fami­lies with young children, or families with less disposable income.

Whole life insurance is designed to offer coverage for your entire life. This policy accumulates cash value over time, so that if you decide to surrender the policy later in life (say, if you’ve managed to live until 90), you get to take the cash in lieu of a death benefit payout. Whole life insurance tends to be much more expen­sive than term, but you can also use it as an investment vehicle.

When trying to figure out how much coverage you will need, it’s best to think holistically about what would happen if you or your spouse died. Things to consider:

  • Income: How much money do you make? One rule of thumb is to multiply your salary by between 7 and 10 to determine how much of a policy to take out. For example, if you make $100,000, you’d want to start with a policy between $700,000 and $1,000,000.
  • Debt: Consider your mortgage or rent payments, car payments, student loans, and/or credit card debt.
  • Child and household care: How much do you regularly spend doing childcare, housecleaning and schlepping kids around? Even if you’re a stay-at-home parent not contributing financially to your household, your death would still impact your fam­ily’s finances. If you die and aren’t around to take care of the kids, your spouse will have to hire Mary Poppins in order to continue working.
  • Education: Budget in what you think you’ll be spending on a four-year college for your kid(s). Think about educational costs before college, too, like tutor­ing, test prep, and extracurricular activities.

Nobody likes to think about not being there for his or her family, but it could happen. Pretending it can’t doesn’t change the real­ity and uncertainty of life, so it’s best to make it a priority. As a general rule, the younger and healthier you are when applying for life insur­ance, the lower your premiums will be; you are less of a risk to the underwriter.