Womb to Bloom - Maternity & Beyond

You’re expecting a beautiful baby. The miracle of life. So, why would you want to bring yourself down and think about death? The answer is, of course, so that the little life you’re about to bring into this world will be taken care of if you’re not here anymore. Life insurance and estate planning are absolutely key to providing for your child in the event of your unexpected passing. Is your household prepared for the unthinkable?

Wills and Trusts

Unless your child has special needs or you have already amassed a good deal of money and other assets, you probably won’t need complicated estate planning. You will definitely need to start with a will. Both parents should have one. Your will deals not only with your assets but also with guardianship of your children. Obviously, in most situations, if something happens to one parent, the other parent will continue to care for the children.

However, if one parent is deceased (or has no parental rights) or if both parents die at the same time due to an accident, the courts will look to the parents’ wills to determine guardianship of the kids. It is important to discuss your choices for guardian with the other parent of your child and with the prospective guardian, just to make sure that everyone is on the same page.

While it is the best practice to seek the advice of an attorney when contemplating a will, simple wills can also be put together using forms from websites such as nolo.com. If you do choose to use a form, make absolutely sure that the form complies with the laws of your state – otherwise, the will may be completely disregarded by the court after your death.

Depending on your assets and on the amount of life insurance you purchase, you may also consider establishing a family trust. The trust, funded by your assets and/or by your life insurance proceeds after your death, will benefit your children. You will be able to designate how the money should be spent and at what age your children will gain control over any remaining funds. A trust also keeps your heirs and their guardians from having to report regularly to the court. You will not be able to establish a trust on your own. Contact an attorney to help you decide if a trust is right for your situation.

Life Insurance

The average two-parent household will spend over $250,000 to raise a child from birth to age 17. This figure includes housing, food, transportation, clothes, personal care, medical and dental care, child care, entertainment and education (but not college tuition). So, if you and/or your partner are not around to make money to pay for those things, how will it all get done? It is essential that parents purchase an appropriate amount of life insurance to take care of their child’s needs in their absence.

Life insurance is generally available in two different forms: term and whole (or permanent). Term life insurance is coverage which lasts for a set period of time (10, 15, 20, 25 years) as long as you pay the monthly or annual premium. When you are young and in good health, the premiums are fairly cheap. Prices generally increase as you age, if you smoke or if you have health issues. If you cancel your policy or fail to pay your premiums, the policy has no cash value – you don’t receive any return for your paid premiums.

Whole life policies combine life insurance with an investment fund. The policy pays a stated, fixed amount upon your death, but a portion of your premium goes to purchase investments made by the insurance company. The cash value of your policy grows each year, tax-deferred. There are variations on this basic premise called universal life, variable life, and variable universal life.

Do some additional research before you decide which type of insurance to buy. Most financial experts advise that term life insurance is all that most people need. There are other investment options out there which are not tied to life insurance. If you are interested in the whole life options, make sure to ask about commissions, fees and surrender penalties before making up your mind.

After you decide what type of policy you need, you’ll have to figure out how much coverage to buy. The goal is to have enough money to replace your income if you die, allowing your family to continue to live the same lifestyle it did when you were alive. Think about the ages of your kids and the other assets that are (or are not) available. Many experts say that five to seven times your annual salary is a good level of coverage. If you have very small children, you may even want to consider more.

So, it may be fairly easy to come up with a number for a working parent’s life insurance policy. But what about stay-at-home parents? Parents who do not work outside of the home definitely need life insurance too. Think about the amount of money it will cost the family to replace the services provided by a stay-at-home parent – childcare, housekeeping, cooking, possibly bookkeeping and more. The value of those services can easily reach six figures. Use this estimate as a guideline for purchasing life insurance for the stay-at-home parent.

If you currently have a financial planner, he or she can probably assist you in reviewing your life insurance needs. Make sure that you review your coverage and your needs as time passes – your family changes, your assets change, your needs may change. Life insurance and wills can both make a difficult transition in your family’s life a little smoother. You owe it to your kids to look out for them, especially when you’re not around.