Being a new parent brings with it a lot of joy, but also increased responsibility. It forces you to ask questions like, “What would happen to my child if I wasn’t around anymore?” Although this isn’t a fun question to think about, it’s an incredibly important one. Life insurance is most people’s best solution for protecting your family from extreme financial hardship if you were to pass away unexpectedly and they no longer had your income. Often times things like the mortgage, college tuition, medical bills, and car payments are impossible to tackle without the breadwinner’s income.
While most families recognize the need to protect their family with life insurance, it can often be a difficult financial product to understand. This is compounded while you’re trying to raise a child and time is of the essence. In this article we’ll cover some basics to figure out how much life insurance coverage you need and give you some tools so that you can do more research.
How much coverage do I need? What if I have more kids in the future?
Your coverage amount is perhaps the most important aspect of buying life insurance. Numerous variables will need to play into your calculation. There are different methods and theories on how to determine coverage needs but for now we just want you to get some ideas.
Life insurance is sought out for many different reasons but for the new parent there is one primary goal – income replacement. Life insurance is what fills the void when your monthly paychecks are no longer there to pay bills and save for the future. So ask yourself, where is my money going now? Are you paying off a mortgage? Are you putting money aside for college tuition?
Here’s a rough rule of thumb for you to consider:
You should have 7 to 10 times your annual income in life insurance coverage.
There’s also another common method that can provide for your family longer term. While these may yield an informative number, your coverage determination may face another issue – what you need is not necessarily what you can afford. In an ideal world, everyone would get the exact coverage they need, but this is not our reality. You may want to hone in on specific expenses like a mortgage loan or college tuition and base your calculations from there.
Finally, what if your family expands?
You have one child today, but in the future you may have more. A Department of Agriculture study from last year puts the average cost of rearing a child from birth to 18 years old at $241,080. And the kicker? This doesn’t include college tuition.
Before buying a life insurance policy you will definitely want to know if the death benefit can be increased down the road. Many policies allow you to easily increase your coverage as your needs change, but others are more stringent. You can always buy additional life insurance through separate policies.
We hope you feel more confident about how much life insurance coverage you need, but there is still a lot more to learn. There are many different policies within the term and whole life insurance categories and each works a little differently. You can learn more about your life insurance options and get a more specific coverage amount that’s customized to your unique situation on Sureify’s platform.
Jacob Ruiz is a graduate of UCLA and is the Content Manager at Sureify. Sureify is a life insurance education platform for millennials where consumers can learn about their life insurance options, estimate their coverage needs, compare policy types and download their a free, personalized life insurance plan so that they’re equipped to buy with confidence.
