The birth of a child is an exciting time in your life. There are so many new memories and happy times ahead. But along with that also comes some additional financial responsibility which should include having a plan for the unexpected.
Although nobody likes to think about "just in case," planning for it is essential - especially when you have loved ones who are counting on you for their financial support. One way to ensure that your child(ren) and other dependents are taken care of is by purchasing life insurance. But how do you determine what would be an adequate amount of coverage?
While there are several "rules of thumb" when it comes to the amount of life insurance you may need, it is important to keep in mind that there really is no one-size-fits-all method of coming up with this figure. That's because all families and financial needs are different.
Given that, there are several factors to consider when deciphering the proper amount of life insurance protection for your family's specific needs.
First, determine the goal(s) for the coverage. For example, will the policy proceeds be for the purpose of replacing income, paying off debt, funding future obligations (such as your child's college tuition) - or all of the above?
This may require asking yourself some tough questions. For instance, if you have a home mortgage balance and / or other debts, would your spouse be able to continue paying on these obligations, or would your family have to drastically change their lifestyle - and in turn, their lives - if your financial support were to suddenly disappear?
If you or your spouse is a stay-at-home parent, it is also necessary to think about how much it would cost to "replace" those duties if the unthinkable were to happen. As an example, child care, meal preparation, and other home and child-rearing duties can be costly. With that in mind, placing life insurance coverage on both parents is typically recommended.
In some instances, life insurance is offered as an employee benefit. Here, too, it is essential that you not rely solely on this coverage. One reason is because the protection may not be portable, meaning that if you leave your job, you may also lose the life insurance. In addition, group life insurance coverage is oftentimes just a fraction of what is actually required for meeting one's coverage needs.
Also, even if you currently have a personal, individual life insurance policy, major life changes like having a child can typically alter the amount of coverage that you should ideally have in force.
That's why it is important to regularly review your policies any time you expand your family, as well as when other life-changing events may occur, such as marriage or divorce, the purchase of a new home (and in turn, a new mortgage), and / or the start-up or selling of a business.
Just like any other type of financial planning, before you purchase life insurance, it is important that you first determine the type and the amount of protection that you need. Here, for instance, you don't want to pay a higher amount of premium than necessary.
Yet, you also want to be sure that you have ample coverage in place to meet the current and future financial requirements of those you care about in case of the unexpected. The good news is that you don't have to spend an inordinate amount of time or effort to find the policy that will best first your specific needs. Rather than going from one insurance carrier to another to obtain quotes, it's much easier and more convenient to simply work in conjunction with an independent insurance agent. In doing so, you will be able to shop and compare the policies and the premium quotes of many top-rated insurance carriers, and from there you can determine the best plan for you.