How to Find the Right Life Insurance For Your Family
Experts share why taking out a policy is so essential for moms and dads.
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That said, some parents will always have a need for insurance, Chatzky says. If there’s someone in your life who will depend on your financial support for your entire lifetime, such as a child or sibling with special needs, permanent insurance makes sense for you, she says. You can also use permanent insurance to leave your kids money in your estate, she notes.
What if you want or need permanent insurance, but can’t afford it? “You can start with term insurance and then convert it to permanent insurance in most cases,” Chatzky says—just make sure your insurance policy provides an option to convert.
Avoid Two Common Pitfalls of Procuring Life Insurance
One of the biggest mistakes experts see parents make is only covering the parent who’s in the workforce and receiving a paycheck. Don’t downplay the work stay-at-home parents do—and the expense it would require to cover it.
“If you’re the stay-at-home parent and if you were no longer there, someone would have to be hired and paid, then you also need life insurance,” Chatzky advises.
Quantifying the amount may be easier for parents in the workforce, but that doesn’t mean it’s the only work that needs to be covered. Take some time to tally up the costs of the many responsibilities covered by a stay-at-home parent. “Cooking, cleaning, caring for children, transporting them to and from school and recreational activities, and the many other tasks performed by a stay-at-home parent cannot be easily replaced,” says Graham, noting that Salary.com estimates the median salary of a stay-at-home mom at a whopping $162,000 per year.
“People should think very seriously about ensuring a stay-at-home parent has coverage,” Graham urges.
Neglecting coverage for nonworking parents isn’t the only pitfall out there. It’s also important to evaluate company-provided life insurance, too, Graham says. Typically, it pays a death benefit that’s equal to one or two times your annual salary, he says. “However, some experts recommend that people’s life insurance coverage should equal ten times their annual income. Needs could be higher or lower depending on a family’s situation,” Graham says.
How Much Insurance Do You Need?
Figuring this out comes down to doing some math and thinking through both your current and future financial situation—to help, you can search online for life insurance calculators.
The biggest considerations to keep in mind are:
1. How much debt do you have? From repaying credit card bills to mortgage payments, your survivors will be on the hook to pay them off.
2. What’s your income, salary, or the cost to replace services you provide? As noted above, this math is easier if you make a set salary. Multiply this amount by the years of coverage you’ll want. For stay-at-home parents, consider the annual costs of replacing their work.
3. How long do you need the coverage? Do you want the coverage to extend until your children are through with higher education, or just until they’re 18? Will you feel comfortable timing the coverage to terminate when your mortgage is paid off? These are the kinds of questions you’ll need to think through.
4. Are there other expenses you want to cover? If you want to cover big expenses—such as your child’s college education—factor it into your coverage amount.
Feeling overwhelmed? There’s no need to go it alone. You can reach out to friends and family for advice. Professionals can also help you make your decision. “A life insurance agent or financial advisor has the knowledge and expertise to help consumers determine what level of protection is right for them,” Graham says.
The most important thing is not to let distaste for thinking about your mortality—or an aversion to doing the thinking and math required to determine the right policy for you—stand in the way of getting covered. As Graham says, “Life insurance is a critical part of a family’s financial wellness.”