When you have a young family you’ve probably thought about needing life insurance to protect your family. Perhaps you haven’t acted because you think it’s too expensive, too confusing or maybe you think it’s an unnecessary expense. With this post we want to answer all these questions and encourage you to protect your family.
Do I really need coverage?
You may be young, healthy and feel invincible. Doesn’t matter. You’re a dad and you have a responsibility to protect your family. This includes financially protecting them from an untimely death of one or both of their parents. In most cases both parents should have coverage, but the amount of coverage may vary based on whether both of you are working or if someone is staying home to raise the kids.
What kind of insurance should I buy? How much? How long?
We believe a young family should consider using term life insurance. You can read a post here about why we say this. Basically, you pay a set, level amount per year for a set time period to get the amount of coverage you choose. For example, you may be looking at a 30 year, $1M term policy. You’ll pay the same premium each year and after 30 years both the payments and coverage end. The premium will depend upon how much insurance you apply for as well as the results of your health exam.
To determine how much you need, you’ll also want to refer back to our previous post where we simplify the traditional calculations. For young dads we’ll make this even simpler, just divide your income by 0.03. For example, if you’re making $75,000 divide by 0.03 to get $2.5M. This is just a general guide and your personal situation will include variables such as debt (mortgage, student loans, car loans and other consumer loans), number of children and education costs, business ownership, etc. Consider discussing the amount you need with a financial professional that is being held to a fiduciary standard.
Here is some more general advice specifically for dads.
- Insurance is generally the cheapest when you are young. It may make sense to “over-insure” your current situation if you are planning to have more kids in the future (which raises living expenses, not to mention education expenses) so locking in the price for more insurance than you currently need may make sense.
- Your wife needs coverage too. If she is working, you’ll want to replace her income. If she doesn’t work, you’ll still want coverage. Consider what you’ll want your life to look like if your wife died (unpleasant thoughts we know, but important to think about). You’ll want flexibility. You may want to work less, not work again until your kids are out of school, etc. The life insurance gives you this flexibility.
- If affordability is an issue, there are some ways to reduce the cost. Consider “layering” coverage so that the amount of coverage decreases as you get older. The thought is that as you get older, you’ve taken other steps to become financially stable and your need for life insurance may be less. Practically, an example of this would be if you were looking for $1M of coverage for 20 years but that cost was too high for you at the moment. You could purchase a 20 year $500k policy and 10 year $500k policy at the same time. This gets you the $1M of immediate coverage you were looking for at a lower cost since in ten years the 10 year policy drops off and leaves you with $500k of coverage for 10 more years going forward. While this does not get you’re the $1M for 20 years you initially wanted, the layering strategy would be more affordable.
Where can I buy?
If you’re going to buy on your own, you’ll want to shop around. Perhaps ask where friends or family have purchased their insurance and then compare with some online quotes. There are several websites that sell term life insurance, the most well-known is Select Quote. If you’re looking for professional help, our recommendation would be to find a financial planner who operates as a fiduciary. This requires them to work in your best interest and removes the likelihood that you’ll be sold something that isn’t best for you. We’d also recommend comparing quotes from a professional with what is available online (the prices should be roughly the same).
Let us leave you with a final encouragement to take the next step and get life insurance coverage. As financial planners, we’ve met with moms with young kids who have gone through the tragedy of losing their husband. Not having the coverage makes a terrible situation even harder. Don’t miss the opportunity to provide protection for your wife and children.
If you have further questions, feel free to send us an email.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable because of health reasons, occupation, and lifestyle choices.