Seeing as I will be a new parent in June, I’ve been doing a bit of research as to the best way to adapt financially to an expanding family. One article I found at MSN Money entitled New Parents’ Top 10 Money Mistakes sparked my interest and my creative juices. This post is the first in a series of 10 that covers each point of the top 10 mistakes and hopefully will elaborate and add a little new parent thinking to the equation. So, without further ado…
Money mistake 1:
Skimping on Life Insurance.
Once you become a parent, having enough life insurance is essential. “If one or both parents dies, you have to make sure your dependents will be provided for,” says Lynn Ballou, a financial planner in Lafayette, Calif.
During the course of the first mistake, they author recommends that new parents make sure that they have enough life insurance to cover 5 times earnings plus all household debts. This seems a little much to me. Obviously, enough to cover household debts is necessary, but how much more for earnings replacement?
I think that it may be more financially responsible to make sure that there would be enough money to pay off the household debts(Mortgage, unsecured debt, car loans, etc…) as well as enough to continue the lifestyle for long enough to effect a change in lifestyle. Unless we have a policy of a million or more there would have to be lifestyle changes if one of us dies. I don’t say that because we live a rich lifestyle, but because one of our incomes alone would not be enough to sustain the current lifestyle that we enjoy. The return on the remainder of a million or more policy would sufficiently supplement the remaining income to where the lifestyle could be continued.
The premium on a policy that large may not be financially possible for us though. Which brings us back to a policy of Household debt plus 1-2 years of income. For us that puts the total policy at about $200,000. Thats if the policy covered both of us. Obviously, individual policies would have varying values and premiums.
Another thing to keep in mind is that some employers provide a accidental death policy. Most of the time this only covers you if you were to die while on the job, but it’s worth double checking just in case it covers you anywhere.