Wondering how to shop for life insurance as a parent? Having life insurance can provide peace of mind when life hits you with unexpected events.
When shopping for life insurance, parents should consider the cost, type of insurance, and how long the policy will be needed. Most life insurance policies will not allow minors to be beneficiaries. Keep in mind that the longer someone waits to purchase life insurance, the more expensive their policy will be.
Now that we know a little more about life insurance, let’s dive further into how it works and whether or not it would be a good idea for you and your family to have life insurance.
How to Purchase Life Insurance as a Parent
When purchasing life insurance, there are three simple things to consider:
- What type of insurance do I want?
- How much will it cost?
- How long should my policy last?
What are the Different Types of Life Insurance?
There are two main types of life insurance, temporary and permanent, which we will expand on a little more below:
Temporary Life Insurance
This type of life insurance, also known as term life insurance, is offered for a specific period of time. Your beneficiary will receive a death benefit if you pass away while your policy is in effect. However, should your policy expire before you pass away, your beneficiary will not receive a death benefit from that policy. But it might be possible to extend your term, depending on the limitations of the policy.
Permanent Life Insurance
A permanent life insurance policy, or whole life insurance policy, offers coverage for your whole life span. Permanent life insurance typically costs more than term life insurance. While this sort of policy may be more expensive, it offers something term life insurance does not — the ability to accumulate cash value.
What is cash value? While you’re still living, the cash value is a component of whole life insurance that you can borrow against. You can use this for things like buying a house, investing in a business, or even college tuition. If you don’t pay certain loans back, though, the death benefit will be reduced significantly for your beneficiaries when you pass on due to the outstanding loan and interest amounts.
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How Much Does Life Insurance Cost?
The cost of a life insurance policy depends on a few different variables such as:
Age
Age is one of the biggest factors when it comes to the cost of any life insurance policy. The younger you are, the cheaper your life insurance policy will be. As you age, your life expectancy goes down which increases the likelihood of your insurer having to pay a benefit to your heirs when you pass away. That’s why the price of your insurance increases as you age. In general, it’s a good idea to buy life insurance as soon as possible when you’re young.
Gender
Females usually pay less for life insurance than men do because they typically have a longer life expectancy. As of the writing of this article, the average life expectancy in the U.S. is 79.9 years for women, and 74.2 years for men.
Lifestyle and Occupation
If you have a high-risk occupation, like a police officer or a firefighter, you should expect to pay more for life insurance than someone working at a low-risk job, such as an office worker.
The same principle applies to the activities you enjoy when you aren’t working. As an example, if you like to go skydiving, which carries a certain amount of risk, your life insurance policy is probably going to cost more than if your hobbies were to include reading or knitting instead.
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Personal Health
Insurers will take into account your height and weight. They may also want to know your average blood pressure readings and cholesterol levels, along with other health information. Some life insurers require a physical exam as well as a questionnaire before they agree to insure you. They will likely also take into account your:
- Smoking Status — Smokers are at a much higher risk of developing certain health issues, which makes life insurance more expensive for them.
- Family Medical History — An insurer may ask if there are any existing health conditions in your family when they are considering whether or not to provide you with life insurance coverage. Conditions such as heart disease, cancer, or diabetes could disqualify you.
How Long Will My Life Insurance Policy Last?
There are a few different factors that determine how long your life insurance policy will cover you:
Age
Age is the first thing life insurance companies look at when deciding how long to insure someone. They consider how long your remaining family members will need money to replace the loss of income that comes with your passing. Therefore, if you have dependents, it’s a good idea to select a policy that will last until you plan to retire.
Debt and Mortgage
Your life insurance policy should last for at least as long as it will take to pay off all of your debt and mortgage payments. Making sure that all of your debt is paid in full can help protect your loved ones and beneficiaries from the responsibility and burden of paying everything off after you’re gone.
Children
If you plan to have kids, or you’re already a parent, a 15 – 20 year term life insurance policy can offer security for the whole family. If something were to happen to you, your life insurance policy could provide for your children until they’ve finished college and are self-sufficient.
Life Insurance for Children
A life insurance policy that covers a child is another type of contractual agreement you may have with an insurance company. When a child is listed on a policy, the child is insured, and the parent is the policyholder. Life insurance policies for children are typically whole-life and provide coverage for their entire lives as long as the premiums are paid.
Buying life insurance for a child is easier than buying it for an adult. It’s typically very quick and easy to qualify. A life insurance medical exam isn’t usually required like it is for adults, but an application will still have to be filled out.
Can a Minor Be a Beneficiary?
A beneficiary is the person, or entity, named on a life insurance policy that is to receive the death benefits when the insured person passes on. It’s possible to name a minor as a beneficiary, but there are a couple of things to consider before doing so.
If you decide to make a minor the beneficiary of your life insurance policy, upon your death, the court will likely have to appoint someone to oversee the funds, which could entail several hours in probate court. In fact, most life insurance policies will not allow you to leave money directly to beneficiaries that are minors.
Instead, a trusted adult should be placed in charge of handling the money until the minor is old enough to be responsible for the death benefits on their own. It’s important to select this person very carefully and ensure they have the best interests of the minor in mind and will use the money to their benefit. This will allow the minor to have access to the benefits without having to go through a lengthy probate process in a courtroom.
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