Becoming a parent changes everything, including how you think about money and security. Life insurance can play a critical role in safeguarding your family’s financial future in case the unexpected happens. Whether you’re just starting to build a household budget or thinking long-term about your child’s needs, life insurance is an essential component of responsible financial planning. Here’s why:
Why does life insurance matter for new parents?
Life insurance is about making sure your family is financially secure if something happens to you. It’s designed to step in and take care of:
- Paying off debts, like a mortgage, student loans, or car payments;
- Replacing lost income so your family members can maintain their lifestyle;
- Funding college education for your children;
- Covering final expenses and medical bills.
How much coverage is needed?
Everyone’s financial picture is different, and the amount of life insurance coverage you should get depends on your unique circumstances. Generally, your coverage needs fall into three buckets:
- Debt and final expenses: Add up your mortgage balance, car loans, credit cards, and an estimate for funeral expenses and medical costs.
- Income replacement: Multiply your annual income by the number of years you’d want to replace it, such as the year your youngest child finishes college.
- Future goals: Estimate the cost of college, daycare, and other family support.
Consider the assets you already have set aside for these purposes and any existing life insurance coverage you may have. Once you determine your total need, you’ll have a clearer picture of whether you have a current gap in coverage.
What kind of life insurance makes sense?
Again, it depends on your individual financial situation. Often, for new parents, term life insurance is a solid option.
How is term life insurance structured?
Term life insurance covers you for a specific period, typically 15, 20, or 30 years, with a set death benefit. There is no cash value, only insurance protection. And it’s typically quite affordable, with the premium usually locked in at the time you buy and remaining fixed for the policy term. Term life insurance tends to work well for young families because the need for coverage often decreases as children age, debts decrease, and savings grow.
At McKay Wealth, we help our clients review their existing insurance coverage and provide recommendations based on what makes sense for their growing families. If you would like to learn more about whether life insurance should be part of your financial plan, don’t hesitate to reach out.