When you are a parent, you know that you need life insurance.  What is less obvious is how much you need, and how long you need the coverage to last.  There are so many options when it comes to life insurance that it can be very overwhelming, especially for a new parent.  There are some important points to consider before you buy your life insurance.  Learn how to decide how much coverage you need below.

Do You Own A House And Have A Mortgage?

If you have a house with a mortgage, but you do not have any life insurance coverage, at a minimum you need enough coverage to pay the entire principal on the mortgage.  When you think about leaving a single parent with a home and mortgage, the biggest expense and the biggest source of stress in their life will probably be paying the mortgage bills.  If you have enough life insurance to pay off the principal at least you can be certain that any surviving spouses and a child will have a roof over their head without the risk of losing a home.

Keep in mind that there are modified face life insurance policies known as mortgage life insurance, which decline at the same rate as your mortgage principal is projected to be paid down.  If you are worried about having excess coverage you can purchase one of those, or life insurance companies also usually allow you to reduce the face amount of a term life insurance policy without any charges.

Do You Want To Provide Enough Coverage To Pay For College?

If you want to guarantee that your child will have sufficient money to go to college, consider having enough life insurance to fund a college account in case a parent dies.  Keep in mind that the cost of a college education is rising at extremely high rates.  Remember that while you will earn interest on a college savings account, you also need to have enough money to cover a college education 18 years from a child’s birth.  According to the National Center for Education Statistics, the average cost of a 4 year college is over $33,000 per year!  Many colleges today charge upwards of $50,000 per year.  In addition to this a child will need money for books and other expenses while they are attending school.  It is not unreasonable to think that a life insurance policy should earmark $100,000 to $200,000 for education in addition to all other needs.

What Does It Cost To Raise A Child?

While the numbers are different in different circumstances, raising a child is extremely expensive.  Without paying for college, the average cost for a middle income family to raise a child is nearly $250,000, and upwards of $450,000 for a high income family in the Northeast.  This is only to raise a child until the age of 18!.  Many children need financial support through college, and sometimes even after college into their 20’s.

Keep in mind that if one of the spouses survives to raise a child, they will probably still earn income unless they are unable to work because of the need to care for the child (sometimes childcare is more expensive than the salary earned from a job).  If extensive childcare is involved, it may negate a lot of the money earned from working and it will add a significant amount of money needed to raise a child.

Additional Funds Needed

While not necessary, some people may also want to use insurance to provide other benefits for a child.  You may want to pay for a private school education, you may want to leave a child enough money for a wedding, and you may want to leave a child some inheritance for them to start their life with.  When you are deciding how much life insurance you need after having a child, you have to remember to account for these additional expenses or benefits that you would like your child to enjoy.

What’s the Total?

Assuming that you are funding a 4 year college education at today’s prices (about $130,000 -$200,000), you need to pay off a mortgage ($300,000), you need to cover the average cost to raise a child ($250,000), and you want to leave an additional ($50,000) to pay for a wedding and small inheritance for your child, the total amount of life insurance that you need after becoming a parent is about $700,000.  This would the life insurance that each spouse needs (if it is a 2 parent home) as the expenses would be on the surviving spouse.

If this number sounds high, it is simply a reflection of how expensive it really is to raise a child to adulthood.  Keep in mind that every situation is different, and you can also use our insurance needs calculator to help you determine the amount of coverage that you need.

Also if you use term life insurance to provide for this need, you will be surprised how affordable this coverage is.  Please fill in our form by inputting your zip code into our quote tool to get an insurance quote today.

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