Most of us have set ambitious goals to live healthier in 2021, make sound financial moves, and maybe graduate from athleisure attire to wearing real pants again. (Maybe.) But the key to sticking with those goals all year is to feel like you’re making progress. While no one wants to think about a scenario where they might not be around, it’s empowering to know that you have a plan — a life insurance plan as parents, that is — in place no matter what happens. And if last year taught us anything, it’s that none of us really know what’s going to happen next.
Thanks to modern technology, it’s easier than ever to help financially protect your loved ones with life insurance. In fact, you can apply for affordable coverage online in as little as five minutes. But before you click that “apply now” button, here are some helpful tips for parents considering life insurance.
What is life insurance?
Life insurance helps provide financial protection for your family when they need it most. In exchange for monthly or yearly premiums to a life insurance company, you have coverage in place should the unexpected occur. If a life insurance policyholder passes away, their beneficiaries receive a lump sum payout (which is usually tax-free) to help pay for end-of-life and ongoing expenses, such as a funeral, monthly mortgage payments, or childcare. If your family can stash away some of that money in a savings or brokerage account, a life insurance payout can also positively impact their long-term financial health.
When shopping for a policy, there are two types of life insurance for you to consider. There’s term life insurance, which covers your beneficiaries for a set period of time, such as 10 or 20 years. Or there’s permanent life insurance (like whole life), which provides lifetime coverage. For most parents, term life insurance is a simple, budget-friendly way to protect your family during the years they need it most.
How much life insurance do parents need?
There are a few simple rules of thumb to consider when determining if you need life insurance and how much you should purchase.
First, both parents should have life insurance. Regardless of your income, if you have dependents who rely on you for their well-being, then you probably need a life insurance policy. A financial dependent could be your children, a spouse you share the bills with or an elderly relative.
Second, most parents need life insurance that’s somewhere between five to 10 times their annual income. You might need more if your family has substantial debts like student loans, or you might need less if you have a healthy amount of savings. For stay-at-home parents, consider a policy that’s equal to your partner’s. Most people want at least enough coverage to pay for end-of-life expenses, the mortgage and the cost of childcare or education until your kids are adults.
Third, choose a coverage length that will last until your loved ones will be financially independent. If you have young children, that might be a 20-year term length. If you have a child with special needs, then a permanent policy might be right for you. If you think permanent coverage will better suit your needs, consider working with a life insurance agent. Permanent life insurance is more complicated to manage and purchase than term life, so you’ll want someone to help you navigate choosing a policy and coverage amount that fits your long-term financial planning needs.
What to know when buying a policy
Choosing the right life insurance for your needs doesn’t need to be complicated. The following are a few simple steps to take when buying a policy.
- Shop around and compare quotes for coverage. Across life insurance companies, term life is designed to be affordable for most parents and their families. When choosing a life insurance provider, shop around and get several quotes for coverage. Policies across companies should be pretty comparable in price. If they’re not, find out what’s different about the quoted policy and make sure it aligns with your needs and budget.
- Choose a buying experience that fits your needs. Do you prefer to do your banking, shopping and nearly everything else instantly online? If so, look into digital life insurance options. While innovative companies offer an online experience you can accomplish in your pajamas, customer support is available via phone, email or chat if needed. Other more traditional companies will usually take a few weeks to process an application and will often require a medical exam.
- Enjoy peace of mind and check in on your needs periodically. Once you have life insurance in place, you pay your monthly premiums, and your family is covered. That’s it. If you welcome a new baby to your family or buy a bigger home, make sure to check in that your life insurance coverage is sufficient to protect your family from financial responsibilities.
Life insurance is a must-have for most financial plans, especially when you have little ones who depend on you for their well-being. If you intend to grow your family in 2021, take five minutes and apply for life insurance. Coverage is affordable, and you’ll sleep better at night knowing your loved ones have financial protection.
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