When creating an estate plan, many parents with young children have one big concern: Who will provide for our children financially if something were to happen to us?
One of the most important goals of parenting is ensuring your children’s long-term financial stability. A key tool to help achieve that goal is life insurance.
Before addressing the financial aspect, the most impactful step you can take is to designate legal guardians for your children in your will. This simple act can make an enormous difference in your child’s life if something were to happen to both parents. Without named guardians, your children may end up in the court system, where a judge will appoint a guardian on your behalf. For guidance on choosing the right guardian, read more here: How to Answer the #1 Question for Parents: Who Should I Choose to Be the Guardian of My Child?
Quick disclaimer: We do not sell life insurance, and this is not professional financial advice. What follows is based on personal experience and general guidance to help you start thinking about your options.
While purchasing life insurance is not complicated, making the right choice is important. Choosing the wrong policy – or no policy at all – can leave your family exposed financially.
The two most common types of life insurance are term life insurance and whole life insurance, and they differ significantly.
Term life insurance is generally more affordable and straightforward. You choose the length of the term and the coverage amount. Once approved, you pay a fixed monthly premium for the duration of the policy. Pro tip, it’s advisable to select a term that extends until your youngest child reaches adulthood.
Whole life insurance, on the other hand, provides coverage for your entire lifetime. These policies typically have higher upfront and ongoing costs and are more complex. While whole life insurance offers features like the ability to borrow against the policy or earn dividends, research suggests that purchasing term insurance and investing the cost difference separately often yields better long-term results. Whole-life policies often come with built-in fees and extras that may not provide equivalent value.
Unless you need the added complexity of a whole life policy, term insurance is often the better choice for young families.
There are many ways to purchase life insurance—either through a broker or an online provider. Most policies require a medical exam for approval. Be sure to do your research, compare providers, and request multiple quotes to ensure you’re getting the best option. Many websites offer financial strength ratings for insurance companies, which can help guide your decision.
While protecting your family without substantial savings may feel overwhelming, taking proactive steps like purchasing life insurance and naming guardians can go a long way in ensuring your children’s future financial security.
Remember, this is a policy you may be paying on for years – so it’s worth doing your homework.
Protecting your family’s financial future can feel overwhelming – especially if you don’t have significant savings yet. But by taking two essential steps – naming legal guardians in your will and securing a life insurance policy – you can gain peace of mind knowing your children will be cared for.
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