Having a Child? Now Is the Time to Get Life Insurance

Two parents hold their child on their laps while sitting on a park bench and smiling.

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According to the U.S. Department of Agriculture, a middle class family raising a child to adulthood will spend over $233,000 on that child between the ages of 0 to 18. That doesn't even factor in the cost of college education, which can be thousands of dollars more per year once a child reaches adulthood.

Parents typically want to make sure their children are provided for -- even in a worst-case scenario where that parent doesn't make it to the child's adulthood. That is the key reason why it is so important to get life insurance when a child is born if the parent doesn't have it already.

Why getting life insurance is so important as a parent

No one likes to think about the possibility that they could pass away before their children become fully independent adults. But the reality is that this sad outcome does happen, and it is up to parents to make sure they are as financially prepared as possible in case it occurs.

Buying term life insurance is often the best way to do that. A term life insurance policy is one that is in effect for a limited period of time, such as for 15 years, 20 years, or even 30 years. Parents can purchase a policy that will cover their life for as long as they expect their child to be dependent on them for financial support.

By securing term life insurance, parents can make certain there is money available to provide for a child into adulthood. And, to cover that child's education, so the child doesn't have to do without in the event that the parent passes away unexpectedly.

Term life insurance can be a much cheaper way to obtain this type of protection than whole life insurance and is usually all that is necessary because children do eventually become financially independent after several decades. However, parents whose children are disabled and who will require lifelong care may wish to opt for a whole life policy, so a death benefit will always be paid out.

Who should the beneficiary be?

When purchasing term life insurance to protect a child, parents need to consider carefully who to name as the beneficiary. Typically, naming the child directly can pose some legal complications because children under the age of 18 cannot legally manage the life insurance proceeds -- and giving a large lump sum of money to a child who is 18 could create problems with wise money management.

It often makes sense for the parent purchasing coverage to name the other parent of the child as the beneficiary of the death benefit. That parent can use the money to provide financial support. However, in cases where the person purchasing coverage doesn't necessarily trust the other parent to use it wisely, there are other approaches such as creating a trust, appointing a trustee to manage the funds on behalf of the child, and naming the trust as the beneficiary.

Parents may wish to talk to an estate planning attorney if they have a more complex situation. But, for most people, simply securing a term life insurance policy with a large enough death benefit to provide for the child into adulthood, and leaving the money to the child's other parent, is a simple and easy way to make sure kids are always taken care of financially even if tragedy occurs.

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