Having children changes how much of your financial life depends on tomorrow’s income. Housing, groceries, childcare, healthcare, and eventually school expenses all become part of supporting another person for years to come.
If a parent dies unexpectedly, many of those costs remain. Life insurance can help families prepare for that possibility.
The Household May Be Depending on Two Incomes
First, look at what it costs to keep your household running for a month. There’s the mortgage or rent, utilities, groceries, insurance, car payments, and childcare. Then, add the expenses that don’t occur monthly, such as purchasing school clothes or home repairs.
Now, remove one parent’s paycheck. Would the remaining income cover everything? If so, for how long? Is it sustainable?
That’s one reason why life insurance often becomes a different conversation once children are involved. A surviving parent could be left paying many of the same bills with considerably less household income.
The amount of coverage a family needs depends on the family. Looking at life insurance quotes can help provide a general idea of what different coverage and policy terms may cost. However, price is only one part of the equation.
Stay-at-Home Parents Have a Financial Role Too
Income isn’t the only thing worth looking over. Suppose one parent stays home with two young children while the other works full-time. Some may instinctively think that the working parent is the only person who needs coverage because that’s where their income is coming from.
However, put a dollar amount on everything the stay-at-home parent does. This would include full-time childcare, cleaning, errands, and other miscellaneous tasks performed while the other parent is at work. The costs quickly add up.
You don’t need to assign a salary to every load of laundry. Just consider what would suddenly have to be paid for or handled differently. For instance, consider before-school care, transportation, or additional childcare during school vacations.
Existing Coverage Through Work May Not Be Enough
Employer-provided life insurance is a good starting point, but look at the actual death benefit before deciding if you have enough coverage. Some workplace plans provide a fixed amount of coverage equal to one or two times an employee’s annual salary. For a parent supporting young children, that money could disappear quickly.
Check whether your employer lets you purchase supplemental coverage as well. If it does, compare the cost and coverage with an individual policy. Some coverage may be tied to your employment, meaning you could lose it or face different terms after leaving the company. Other options offer portability or conversion options, but the rules and costs vary.
Your Beneficiary Information Needs Attention
Having the right policy won’t be of much use if the information listed is outdated. Review your beneficiaries after major family changes such as divorce, births, and deaths. Don’t assume that a change in a will automatically changes the beneficiary on a life insurance policy as well.
Parents should also be careful about directly naming a minor child as a beneficiary without first getting appropriate estate or legal guidance. Minors generally cannot simply receive and manage a life insurance payout themselves. Planning is needed.
Revisit Coverage as Your Family Changes
Buying life insurance after having a child doesn’t mean the decision is finished for the next few decades. As life changes, periodically review your policy to make sure that it’s still relevant to your situation. For instance, if you recently purchased a home with a much larger mortgage. That might entail increasing your insurance amount or coverage.
Life insurance becomes more important after having children because your financial responsibilities now extend well into the future. The right amount of coverage will depend on various factors like income, debt, savings, and childcare needs. What’s most important is leaving enough financial support for your family to keep moving forward.
Author Bio: Sean Rogers is a CFP® at Policygenius, an online insurance marketplace that helps consumers compare and purchase coverage. Since joining the company in 2018, he has overseen advanced planning, case management, and carrier partnerships. With more than 13 years of experience in the insurance industry, Sean specializes in life, disability, long-term care, and health insurance, and previously worked at a leading brokerage under NFP as well as a top Mass Mutual General Agency.
