Young families need the security provided by life insurance.
When couples start having children, priorities change as they take on new responsibilities.
They must work together to rear their children to adulthood.
Taking care of the needs of a family requires money.
Financial security can quickly be threatened if something happens to one or both parents.
To prevent the disastrous impact of an unexpected death, young families should purchase life insurance to protect the needs of the surviving spouse and children.
Why life insurance?
Only life insurance can create the "instant" estate you did not live to create before an accident or illness claimed your life.
Because no family situation is identical, young couples should consider factors like future goals, financial obligations, and family lifestyle to determine the required coverage.
Young families can use life insurance to protect the future of their children.
Young families have children who depend on their parents to meet their needs.
Life insurance provides financial security and protection to children who have lost one or both of their parents.
The funds from life insurance proceeds can be used to pay off mortgages or other debts, replace lost income, cover childcare or education expenses, fund vocational training or college tuition, and maintain living standards for surviving family members.
When young families do not have life insurance, the designated guardians or the surviving spouse could experience financial stress and strain.
As a result, they may have to change careers, move, or limit the opportunities available to young children.
By getting your coverage early, you will have lower premiums and provide financial protection for when your children are dependent and vulnerable.
Not every couple requires the same amount of coverage.
What factors should be considered when determining an appropriate amount?
Income replacement.
How much money would your family require each year if your income suddenly went poof?
Many experts would recommend starting with seven to 10 times your annual salary.
Outstanding debts.
Debts will create a significant stressor for loved ones when one spouse is left alone with children.
Your life insurance amount should account for credit card debt, mortgage balances, and student loans.
Future expenses.
Caring for family is costly.
It just costs a lot to live.
If paying for school tuition, weddings, or caregiving for aging parents is essential, then you should include the milestones in your calculation.
Childcare and daily living.
Single parents cannot be in two places at once.
They will need to work to provide for their family.
While they are working, they will not be able to stay home with their children.
Consequently, any childcare costs should be included in your life insurance amount.
Existing assets and coverage.
Young families should review their employer benefits, savings, and existing insurance policies to determine their gaps in coverage.
Although you can get a rough estimate using online calculators, working with an experienced estate planning attorney or a financial adviser would allow you to have a more specific number to meet your family's needs.
Most young families will find term life insurance to be both the most practical and affordable coverage option.
How does term life insurance work?
A person is insured for a set number of years.
These time limits are generally 10, 20, or 30 years to account for when financial obligations to support dependents are the highest.
In contrast, permanent life insurance policies offer lifetime coverage and often have a cash value component.
Universal life insurance and whole life insurance are typically types of permanent policies.
Because these policies are significantly more expensive than their term counterparts, most families decide that their term policies are a better fit financially.
Whether your family chooses term or permanent life insurance, you should review and update coverage after life events like purchasing a home, the birth of a child, or a career change.
By making adjustments, your policy can continue to align with your current needs.
My personal and professional recommendation?
Purchase the maximum life insurance you can to cover your needs.
If that means you load up on term insurance due to affordability when your family is young, make sure the policy contract provides for "convertability" to permanent insurance without proof of insurability in the future.
That way, as your family grows and your income increases, you can help ensure financial security for your spouse and estate liquidity for your loved ones.
Fact of life: In my 32 years as an estate planning attorney, I have never heard a widow complain about her husband's life insurance.
Life insurance polices have beneficiary designations.
This means the proceeds will pass directly to those listed as beneficiaries rather than through probate distribution.
Parents of minor children must coordinate their life insurance proceeds with the rest of their comprehensive estate planning.
When minor children are named as beneficiaries directly, the courts will often require the appointment of a guardian to manage the money on their behalf until they reach adulthood.
To avoid this step and to prevent their children from having full access to the funds when they are still young adults, many parents choose to name a trust as the beneficiary of their life insurance policies.
Trusts provide specific guidelines for the management and distribution of the funds.
By working with an experienced estate planning attorney, you can structure your estate plan to address your goals and protect your loved ones.
If you need to protect your children and your spouse through estate planning, you can request a consultation with our Overland Park estate planning law firm.
Life insurance provides financial security for loved ones who require income replacement and funds for future expenses after the death of a spouse or parent.
Because young families have differing needs, the amount of coverage should account for debts, income, future goals, and childcare costs.
Although term and permanent policies are both options, term tends to be more cost-effective for coverage for families, while permanent policies fulfill certain estate planning goals.
Life insurance policy payouts are directed to heirs through beneficiary designations.
Rather than naming minor children as beneficiaries, utilizing a trust and designating it to receive the payout can be helpful.
To ensure your life insurance policy coverage continues to align with your family's needs, you should review your policy after births, home purchases, or job changes.
Doing so can give you greater peace of mind for protecting everyone you love and everything you have.
And, you can take that to the bank.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: Investopedia (March 3, 2025) "How Much Life Insurance Cover Does Your Family Need?"
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