Life insurance may be an essential part of your estate plan.  A big responsibility for a new parent might be this: would your family be financially secure if you or your spouse were to pass away?  Life insurance may be the solution to ensure that your family can be taken care of after an unexpected life event. Let’s look at life insurance for new parents.

Bankrate’s recent article entitled “Life insurance for parents” notes that many families rely on two incomes, so when one spouse or partner dies, the survivor can face financial hardship in covering the cost of necessities like food, education and a mortgage. A life insurance policy can provide some peace of mind knowing that if one person passes away, the surviving spouse would be able to maintain their current lifestyle, even with a single income.

Life insurance can be a valuable financial planning tool when you start a family. Until your children reach adulthood, they’ll be dependent on your income. If you want to help your children pay for college, a life insurance policy can be a useful financial planning tool. If you die before your child turns 18, your partner might not have the money to support them through college without your income.

There are several types of life insurance policies and selecting the best type of coverage will depend on your circumstances. Here are the most common types of life insurance available for parents:

Whole life. This is a type of permanent life insurance that pays out a death benefit when you die. It has a cash value component you may be able to borrow against or withdraw entirely. However, if you do that, it may decrease the final death benefit payout even though the cash value is typically not included in your death benefit and is only accessible while you’re living. Whole life policies typically don’t expire, as long as you continue to pay the premium.

Universal life. These policies are permanent like whole life policies. They build cash value based on a money market interest rate. They also offer more flexibility as your life changes and let you up the death benefit of your policy later, if you pass a medical exam.

Variable life. Variable life policies have a death benefit when you pass. However, this type of insurance could also act as an investment. You can opt to invest the cash value part of your coverage in bonds, money market mutual funds, or stocks. Because of market fluctuations, it’s key to remember that if the investments you choose don’t perform well, it could mean a reduced death benefit.

Term life. These policies have a set policy period. They’re good if you only need coverage for a certain period of time. They pay a death benefit, but don’t accumulate a cash value.

Reference: Bankrate (July 26, 2022) “Life insurance for parents”