All, parents need life Insurance. Step, Biological. Part time.
There are so many things that cross your mind when having a new born baby. One of the things that you should think of is they are now relying on you until they are 18, at least. This is how life insurance should be included in your thoughts.
Life insurance is a great and simple way to take care of your child and family if anything any happens to you.
- What Life Insurance is? How it works.
- Different types of life insurance? and what is right for you?
- Both parents need life insurance, here is why.
- How much life insurance to buy
- Your beneficiaries
What Life Insurance is? How it works.
To put in simple terms, life insurance will pay a benefit if you are to die. There are other ways to get partial payouts also, but for this article let’s look at the death benefit.
When you die the beneficiary will get the face amount of the life insurance policy.
For Example: You buy a $1 million policy insuring your own life and name your spouse as a beneficiary. If you die while the insurance is in effect, your spouse receives the $1 million payout. This money can be used in many ways; pay off bills, pay fpr college or even put into a interest bearing account to receive interest on. Also most cases the insurance payout is tax free.
Different types of life insurance? and what is right for you?
There are basically 2 types of insurance: term life and permanent life.Term life will cover your for a certain amount of time. Term life is the most affordable kind of life insurance. You can get the most bang for the buck and buy a lot of coverage for a low price. Term allows you to cover a time period, such as 10, 20 or 30 years. If you die during the term, the policy pays the beneficiary. After the term period coverage doesn’t end put will go up annually. ( it will increase a lot)
Permanent life insurance will last your entire life. The policy will pay the death benefit after your first payment or in 50 years. Whole life, universal life, variable universal life and indexed universal life are types of permanent life insurance.
These policies are more complex than term life because they include an investment component known as cash value. The cash value account grows slowly, tax-deferred. You need to really understand these polices and talk to a knowledgeble about the policy.
Once the cash value is substantial — after, say, 15 to 20 years — you can borrow against it, use it to pay premiums or use it to buy additional coverage. Any outstanding loans against the cash value at the time of death will decrease the payout to the beneficiary.
You can even surrender the policy for the cash value, minus a surrender fee. But that ends the coverage, so the beneficiary would receive no payout upon your death.
What type of policy is right for you
Buy term life if:
If you want a quick and simple policy.
You want the most affordable coverage.
If you have children and need a lot of coverage for a fixed period of time. Children up to college, pay off mortgage.
Buy permanent life if:
Someone will count on you financially for the rest of your life.
You want a policy that builds cash value.
You have estate needs, such as paying taxes for your large estates.
Term life is a great product for most people. I believe that if you have children in the home this is a great product to have at a great price. When I had my son I got a 1 million dollar policy for 20 years. It was a $50 a month policy. So if you are a new parent, old parent most of us have a budget. At least get a term to make sure that if something happens to you, your family is still good.
Hopefully after the term you wont need life insurance. You will have savings , retirement investments. But some people like to have a comfort blanket that is where permanent life come in.
Permanent life insurance can be useful if you have a financial dependent for life, such as a child with special needs. If you have a big estate, you can also use permanent life insurance as an estate planning tool. Also if you feel comfortable having something like a small burial policy.
Also there is another policy called a GUL that is a hybrid term life insurance that will last up to age 121 years. A great policy that is priced better that a traditional permanent life insurance policy.
Why all parents need life insurance
All parents need life insurance, not just the people earning an income here is why.
A stay-at-home parent provides valuable services, such as child care, that the surviving parent would have to pay to replace. The life insurance could even be used to have the parent stay at home to help children to adjust and let parent take time off of work.
How much life insurance to buy
To figure out how much life insurance you need I do a really easy step process:
If you have children that you are protecting;
Youngest childs Age
What Age do you want them covered til ( 18,21,25)
How much of your income you would like to be replaced, some or all.
Income x years = Amount
If you are protecting Assets, Spouse.
Bills you want paid off
How many years you want to protect
How much income you want replaced
Income x years + bills = Amount
When you get a policy you need to name a beneficiary, usually you will name your spouse as primary. If you are a single parent you can name the person that will take care of your children if you were to pass. Also a trust will be a good way to delegate the monies after you die.
A contingent beneficiary would be secondary to the primary. It has happened that married couples will die together. With a contingent this would allow the money to go to someone else without probate.