Somewhere between the eight month of pregnancy and the first 3 months after the birth of a new born baby, I usually receive a phone call from an excited father or mother, telling me they need life insurance. It’s like clockwork and happens just about every time. All of a sudden a magical bell goes off in the new parent’s heads and they realize they need to buy a life insurance policy.
Well, for most parents that’s what happens. For others, they have to be coaxed or convinced they need life insurance to protect their family. If you are in the group of new parents who think you don’t need a life insurance policy, this article is for you.
Why New Parents Need Life Insurance
No one really wants to think about life insurance. Thoughts of dying typically make us uncomfortable and paralyze us from taking action. But once you become a new parent the conversation of life insurance takes on a whole new meaning. Your child needs you to grow, to learn and to be protected. Without life insurance, new parents are leaving their family’s financial future to chance.
In the event of a tragedy, life insurance proceeds can:
• Pay for funeral costs
• Help pay monthly bills and ongoing living expenses
• Pay off outstanding debt
• Pay for your children’s education
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When you’re a young new parent with a whole array of new responsibilities and a host of baby expenses, buying life insurance is probably not a priority. But what happens if you suddenly died?
Will your spouse be able to pay the bills? Will your family be able to maintain their current lifestyle without you?
Learning About Life Insurance The Hard Way
Rob and Debbie knew each other since childhood. They went to same elementary school, the same middle school and they fell in love at the high school football game.
After graduating from high school, Rob skipped going to college and got a job as a mechanic at a local gas station. Debbie went to the local community college and got her degree in business administration.
Three months after Debbie graduated from college Rob asked Debbie to marry him. They got married by the Justice of Peace at City Hall. Many people from town attended the wedding but most folks thought the couple was too young to get married.
Rob was a motorcycle enthusiast. Being a mechanic gave him the opportunity to work on old bikes and customize any bike to suit his needs. Debbie got a job as an administrative assistant at the local pharmacy in town and wasn’t working there more than 6 months when she learned she was pregnant.
The happy couple bought a home with the money Rob was saving while Debbie was in college. The home was only a few miles away from the high school where Rob and Debbie fell in love. A few months later, Debbie gave birth to a healthy boy, Robert Jr. The new parents were ecstatic and everyone in town who knew Rob and Debbie, thought they were the perfect family.
“He Was The Only Man I Ever Loved”
While coming home from work one night, Rob died in a freak motorcycle accident. What happened next to this perfect family happens almost every day in America.
Rob never gave much thought to life insurance. To Rob, life insurance was confusing and way too expensive. After all, “Who needs life insurance anyway?” he once said. “I’m young and healthy with a lot of good years ahead of me.”
Rob couldn’t have been more mistaken. In an instant his life was over and his wife and son were left emotionally and financially devastated.
Debbie was all of a sudden responsible for taking care all of the household bills on her meager salary. Her boss felt sorry for Debbie and gave her a few months off to grieve for her loss, but eventually she would have to go back to work. Who was going to take care of her baby? She could barely make the mortgage payments and no way could afford a baby sitter or nanny to watch Rob Jr. all day.
If Rob had a life insurance policy, his death would have been much easier financially for Debbie and her son. There is no better way to protect the ones you love than with life insurance.
What Type Of Coverage is Available For New Parents?
There are basically two types of life insurance coverage: term and permanent (whole life).
Term life insurance for new parents is probably the best choice because it is the most affordable coverage. Term is temporary coverage and provides a level death benefit and level predictable premium payments. The policy terms available are 10,15,20,25 and 30 year term policies.
20 year term seems to be the most popular policy choice for new parents. There is no statistical data that I know of as to why most people choose 20 year term insurance. It just seems that many people feel that 10 year term is not long enough and a 30 year term policy is considered too long.
No matter what term period you buy, you are insured only during that term. Once the term expires your coverage is over. If you choose the 20 year term option and die in the 21st year, There is no coverage. If you still need coverage after your coverage expires, you will need to buy a new policy for a new term.
The Advantages of Term Insurance:
- Affordable for most people
- Less commitment
- Level Premiums
- Guaranteed Death Benefit
Disadvantages Of Term Insurance
- Temporary Coverage
- Proof of good health required to qualify for new policy
The major problem with term insurance is that it becomes very expensive if needed beyond the initial term
Whole Life (Permanent Insurance)
Whole life insurance for new parents is probably not the best choice at this time of your life because you are probably facing new financial responsibilities. This type of policy is usually 5 to 10 times more expensive than term coverage because along with a death benefit there is also a savings component called cash value.
Whole life insurance is designed to provide permanent or lifetime coverage. It is perfect for parents that see their insurance needs as long term. As long as your premiums are paid, your coverage will not end no matter how long you live. The cash value or savings account can be used by the policy holder for any purpose or at any time.
The cash value account earns interest and grows tax-deferred. Which means you will not pay taxes while your money accumulates. The only way you will pay taxes on your savings is if you cancel the policy or withdraw your earnings. Most people borrow from the account which protects the account from being taxed.
The Advantages Of Whole Life Insurance
- Coverage which lasts a lifetime
- Forced savings account
- Tax-deferred growth
- Flexible access to your savings account
Disadvantages Of Whole Life
- More expensive than term
- Viewed as a poor investment by “financial Guru’s”
Other Types Of Permanent Coverage
(A quick overview)
Universal Life (UL): The is a hybrid policy of whole life insurance. It provides coverage that will last your lifetime and a cash value account that earns interest. The major difference is that Universal life allows for flexible premiums whereas with whole life your premiums are fixed.
Indexed universal Life (IUL): This policy is a universal life policy with a death benefit and a cash value account that is invested in the stock market. The account is managed by an investment company and any gains are credited to your account. Your savings account is guaranteed to never lose value but the amount you can earn is limited to certain thresholds agreed to within the contract.
What Type of Coverage is Right For You?
Well, that depends. Most likely is you are a new parent, term life insurance would be the best choice because it is affordable. Some insurance is better than no insurance. We are here to help. Just call 914-633-1717 to find out which plan is best for you.