You’ve probably already realized that getting life insurance is important to protect the financial well-being of your family, but between being sleep-deprived, changing diapers, and feeding, when do you have time to research and shop for life insurance?
This guide will explain the types of insurance available, who should be insured, and how much coverage you need.
The Types of Life Insurance Explained
Permanent Life Insurance
As the name implies, this type of policy will pay out regardless of when the insured dies. Because Permanent life insurance policies cover the entire life of the insured and accrue cash value, it is much more complex and generally more expensive than term life insurance.
When the cash value of your policy has grown, you can borrow against it or use it to pay for an increase in coverage. You can also “surrender” the policy, meaning, cash it out minus a surrender fee.
There are several types of permanent life insurance:
- Universal Life Insurance
- Variable Universal Life Insurance
- Indexed Universal Life Insurance
- Whole Life Insurance
You should consider Permanent life insurance if someone is going to depend upon you for the rest of your life, such as if your child is disabled or has other special needs. Also, if you are wealthy and want to use a life insurance policy to avoid estate taxes, Permanent life is for you.
Term Life Insurance
Term Life is temporary and the most affordable type of life insurance. You buy a policy for a certain time period, such as 10 or 20 or 30 years. If the insured dies during that term, the policy pays out to the named beneficiary. If the insured lives past the end of the term, the policy pays nothing.
Medically-underwritten term life insurance will be much more affordable because if you can show you are in good health, generally, you will pay less in premiums than someone who is not.
Term life insurance is the type most families opt for because it is inexpensive and simple, and it is easy to get and compare insurance quotes online. Coverage is provided for a fixed period, say, for 30 years, by which time your child will have grown up and become independent, your mortgage will be paid off, and you’ve accumulated some savings for retirement – you hope, at least!
If you think you might need or want Permanent life insurance someday, it is possible to convert some or all of your Temporary life insurance to a permanent policy in the future.
Both Parents Need Life Insurance
This probably makes perfect sense if both parents work, but if one stays at home that parent should also be insured.
Why? The stay-at-home parent provides the child care and also likely household management, like shopping, cooking, and cleaning, that would have to be replaced with paid services at least in part if that parent were to die.
How Much Coverage Do You Need?
Take the following steps:
- Decide how many years of income you need to replace. This can take into consideration the term of your mortgage and/or the age of your child or children.
- Multiply that number by your annual net income.
- Add your other present obligations, like debt, and future obligations, like braces or college;
- Add the cost of other anticipated services (Lawn care? Tax preparation? Summer camp?).
- Subtract whatever savings you have.
- Subtract whatever other life insurance you have, like group life through your employer.
This simple guide has given you a jumpstart to obtaining the life insurance you need as a new parent. The next step is to go online and google “life insurance quote comparison” to find your perfect policy.
About the Author
Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with Chad Boonswang, Esq., a busy Philadelphia life insurance lawyer.