Life Insurance: The Big Financial Decision You May Be Forgetting

Crib – check!
Car seat – check!
Minivan – check!
College Savings Plan – check!
Life Insurance – oops!

Life Insurance – one of the most forgotten, yet important financial decisions parents need to make. It’s easy to think about all of the stuff you need for a new baby in the short-term (saving for college is always a hot topic – just remember to save for your own retirement before you save for college) but thinking about things like life insurance (or long-term disability insurance) often gets forgotten.  I am a CPA (certified public accountant). My husband also works in finance and has a degree in Accounting. Even we forgot about this important investment!  Here is some information to help you decide what next steps are best for your family.

Who needs life insurance?
A common thing I see is families where only one parent has coverage. This generally occurs when only one parent is working and the working parent ends up being the insured parent.  This is a great first step as it takes into account the loss of income should something happen to the parent earning income.  When deciding who to insure, the costs incurred with the loss of a stay at home parent should also be considered.  Something else to consider is what other assets you have. If you possess sufficient assets, you may determine that you don’t need a policy at all. Though it wouldn’t hurt to go ahead and get a term life insurance quote anyway. You may be surprised at the affordability and practicality of having this type of coverage.

How much insurance do I need?
BankRate has a great calculator to help you determine how much coverage you need. If you’re not ready to shop for quotes, an alternative may be to sit down with your spouse or partner to discuss your financial goals, calculate your assets and determine how much coverage you may need.  To get started, the most important things to consider is the purpose for purchasing the policy (pay off your house, etc.) and the number of beneficiaries aka how many people you plan to support.

Where can I purchase a life insurance policy?
One of the most common places is through an employer. Some workplaces provide a certain level of insurance for free and allow employees to purchase additional amounts.  One of the benefits of workplace insurance is policies are generally competitively priced and usually don’t require a health exam.  For a stay at home parent, a lot of work places will also offer an insurance option for the spouse of the employed (though the insurance coverage is generally lower).  While insurance through work is great, consider if you lose your job, you will most likely lose your insurance coverage, as well.  If this happens later in life and you seek private insurance, you may not be in as good of health (leading to higher premiums) and you will have lost the amount you paid in.  Another option is purchasing a policy through an insurance company.  Insurance companies and their agents will most likely be able to provide more insurance options such as term life vs. full life, the number of years, etc.

What if I already have life insurance?
A lot of people have already purchased life insurance before having children.  Just remember, as your circumstances change (more kids, bigger house, etc.) that your insurance needs may also change.  You might want to review your financial needs periodically or during any new life events to make sure you have enough insurance. This is also a good idea to ensure that you aren’t overpaying for unnecessary insurance.

I know that talking about life insurance isn’t fun. No one wants to broach this morbid topic. It’s important to consider your potential needs now though, so that you don’t have to worry about finances in the unfortunate event you lose a loved one.  Of course, if you have any further questions, be sure to check with a financial advisor or insurance agent.

Is your family covered?! Share your insurance agent recommendations in the comments!