Life insurance provides protection for families with young children.
Life insurance is not always necessary.
If you are single and have enough saved to bury you when you die and pay any additional expenses or debts, you likely could bypass a policy.
But what if you later marry, have children, and become “uninsurable” for some health reason?
Consequently, couples should purchase life insurance to provide additional financial protection for the surviving spouse, especially if that spouse was the breadwinner.
Just as important, make sure to insure the stay-at-home parent.
The “services” they provide out of love and affection are very expensive to replace.
According to a recent Nasdaq article titled “Having a Child? Now Is the Time to Get Life Insurance,” those with children should have life insurance.
This is essential when there are minor children in the home.
Children require the support of adults to survive and thrive.
Although most parents dream of being there to support their children as they grow, this is not always the case.
Whether through accident or illness, parents sometimes die before their children before adulthood.
If these parents failed to plan for the financial futures of their children, they could leave their surviving spouses and their children struggling to make ends meet.
How can parents avoid this outcome?
One way is to purchase a life insurance policy.
It creates an “instant estate” when you have not had time to build it.
At its basic level, you exchange money you can afford, known as the “premium,” in exchange for the creation of that “instant estate” that you family cannot be without when needed most.
If you do not have a policy already, you should prioritize getting one when your first child is born.
When doing so, it can be helpful to understand a little about your life insurance options.
The two fundamental categories are “term” and “permanent” life insurance.
With a term policy, it will be effective for a limited amount of time.
Essentially, you are “betting” with the insurance company that you will or will not die within the period of coverage.
By the way, that is a bet you really do not want to win!
For example, you could purchase a policy for 15 or 20 years or as long as you expect your children will be financially dependent on you.
When selecting the amount, you should consider how much will be necessary for educating and providing for your children.
A life insurance professional can help advise you regarding this amount.
If you do not currently have a life insurance professional, ask your estate planning attorney for a referral to one.
Generally, term life insurance is less expensive than permanent life insurance.
Term insurance is a good option for those who know their children will be fully independent in a few decades.
On the other hand, permanent insurance can be a wise choice for families who have children with special needs or who will require care throughout their lifetimes.
With a permanent insurance policy, death benefits will always be paid.
Spoiler alert: Most term policies do not pay off because they are eventually cancelled by the policyowner.
The premiums become unaffordable with increasing age (i.e., annually renewable term) or at the end of the set period of fixed premium payments (e.g., 15- or 20-year-level term policies).
Translation: you continue living and the insurance company wins the bet.
In our own insurance planning, I started out with a large term insurance policy to cover all of the bases for Gretchen and my girls when we were a young family.
Over of the years, we have “converted” that term policy to a permanent policy for additional financial protection long-term.
Note: Over some 30 years as an estate planning attorney, I have never heard a widow complain about the life insurance her husband had when he died.
Again, it is essential to have a life insurance professional on your team to help you evaluate the amount of the needed death benefit, the coverage period, and the best bang for your buck (term or permanent) to accomplish your objectives.
When you purchase your policy, you will also need to designate the primary and contingent beneficiaries.
Minors cannot legally manage life insurance proceeds themselves and also may squander the money if they did inherit upon becoming adults.
In most states this is age 18, like Kansas and Missouri.
Naming the other parent as the beneficiary for the policy can help, as the payout will be used by the surviving spouse for general family needs (e.g., pay off any mortgage and other debt) and for the support of dependent children.
What can you do if you do not trust the financial management ability your spouse or the children?
You can created a trust and designate it as the beneficiary.
You will be responsible for appointing the trustee who must manage the funds for your spouse and children according to the guidelines you set in the trust.
I have painted with a really broad brush here.
This is a subject worthy of your time and attention.
Too much is at stake.
Working with an experienced estate planning attorney in coordination with your life insurance professional can help you incorporate life insurance into a comprehensive estate plan.
Reference: Nasdaq (Dec. 12, 2021) “Having a Child? Now Is the Time to Get Life Insurance”