Be informed about life insurance
Few milestones compel someone to buy life insurance coverage like becoming a parent.
Here are five tips for parents looking to buy life insurance:
With term insurance, you pay a premium for a set period, commonly 10 years or 20 years, and your policy entitles you to a specific amount of money.
Whole life insurance policies cover insured individuals as long as they live. These policies function as savings vehicles. A portion of the premiums paid for the policy are invested to provide a pool of money that the policyholder can access, tax-free, while they're still alive.
Andrew Porter, a certified public accountant in LaFayette, Calif., advises clients who are new parents to avoid whole life insurance.
Generally, an insurance agent will help you determine an appropriate coverage amount for the policy by examining some of the key costs your family will have, such as the cost of child care, education and a mortgage.
Another approach is to figure out how much income you're expected to earn over your lifetime.
Still, while it might be tempting to think of life insurance in terms of a dollar amount, it makes more financial sense to tie that amount to a goal, such as paying off a mortgage or college tuition, Porter said.
Buy a policy early
The cost of life insurance doesn't hinge on your credit rating, savings or assets. It's determined by your age and the results of a medical evaluation that's required every time you seek coverage.
If you're a couple in your 20s and healthy, you'll pay less than when you're in your 30s and 40s.
Insure both parents
It's common for both parents to work and contribute to household expenses and the costs of caring for their children. That's one reason experts recommend both spouses have life insurance.
But even in cases where one parent quits work to care for a young child, that parent should be insured.
Consult the pros
Wading through the trove of life insurance offerings can be challenging. It's best to consult with a financial adviser and meet with an insurance agent who can provide the most up-to-date rates and policy options available.
To find agents: www.lifehappens.org/agent-locator/.
To find a financial adviser, try the National Association of Insurance and Financial Advisors: www.naifa.org/consumer/advisor.cfm.
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