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Life Insurance and Wills: Planning for Your Baby’s Future

Please note: This article is for informational purposes only and does not constitute financial or legal advice. Please consult an attorney, financial planner or insurance agent before making any decisions.

You’re pregnant. You want the best for your baby. You’ve researched and queried and shopped til you’ve dropped. You picked the safest car seat, the best quality crib mattress, the softest onsies, and the chlorine free diapers. You know all about the benefits of back-sleeping and breastfeeding and you can expound in detail on vaccine schedules. You have an entire arsenal of books and products to help you protect your baby from anything.

But…

Do you have a will? What about life insurance?

No one likes to think about their own mortality but, as parents, we have to confront the inevitability of death and set up mechanisms to care for our children even in our own absence. A life insurance and a will with guardianship provisions will make sure that your family is cared for even if you’re not there to do the caring.

Life Insurance: Many people have life insurance plans offered through their employer and they don’t think about additional coverage. At least, I didn’t until I was pregnant with my first child. But my work-based policy, like many basic employer plans, was only equal to a year’s salary, which would cover funeral expenses but not much else. The importance of life insurance is to replace the earnings of the deceased over the long term. This is especially critical if you have a single-earner family because the death of the earner would be a financial catastrophe. But even for a non-earning partner, there are financial concerns to consider. The cost to replace just the childcare provided by a stay-at-home parent is not inconsequential.

Life insurance is kind of complicated because there are a lot of choices out there. The two basic types of life insurance. Term life insurance is where you pay a monthly premium for a set number of years and the insurance company would pay full benefits if you die during that that time but the coverage ends when you stop paying premiums. Whole life insurance is more of an investment; according to About.com, whole life insurance is an insurance policy that covers you for your lifetime.

Whole life insurance also builds cash value, which is a return on a portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw it and you can borrow against it.

Deciding what kind is better for you is a conversation to have with a financial planner.

Determining how much coverage you need is another conversation for a financial planner, though there are a lot of different schools of thought on that. The basic rule of thumb I heard when I was setting up our policies was to replace ten years of your salary. According to Kiplinger’s magazine, however, that’s an oversimplification. They suggest taking into account funereal expenses, debts such as mortgage and car payments, current and future educational costs for children, as well as income replacement.  I would add that you should consider costs of health insurance as well, especially when calculating a policy for a partner whose job provides health care benefits that would need to be replaced in the event of their death. All of this is a conversation to have with a financial planner or insurance agent.

Whatever kind of insurance you get, you should review your policies periodically to make sure they’re consistent with your needs, especially if you buy a house, have additional children, or change jobs.

Wills: All parents should have will if for no other reason than to clarify who will care for their children if they should both die. When constructing a will,  attorney Bruce Godfrey of Maryland suggests parents should speak with their lawyer about  guardianship of the children (if both parents die), guardianship of property if given to a child, and trust provisions for special needs children.  (Information from Mr. Godfrey does no constitute legal advice and readers are advised to speak with their own attorneys before making legal decisions).

It’s also important to have clear provisions on the distribution of property because not all states automatically transfer property to the surviving spouse – your could find your child as co-owner of your house in a case like that. Better to seek out an attorney licensed by your state and familiar with the peculiarities of your state’s laws to draft out all arrangements for guardianship and distribution of property.

Finally, Mr. Godfrey cautions against using websites to draft a will. While a website can spit out a document for you, it won’t provide the ongoing service a lawyer can in the case that estate laws change and require changes to your will. Retaining a good attorney can be costly but it’s a responsible parenting choice. As Mr. Godfrey says “Using a non-attorney website document assembly company to draft your estate documents is like letting Wikipedia treat your child’s broken leg.  A responsible parent will actually take the child to a doctor or emergency room.  The family’s estate planning requires actual professional attention and responsibility, not merely a website.”

As unpleasant as it is to think about death when planning for your child’s life, it’s even more unpleasant to think about a future where your child has no security in the event of your death. Take the time to meet with a lawyer, insurance agent, or financial planner and figure out what you need to do to safeguard your family’s future. You’ll be glad you did.

Read more from Rebekah at Mom-in-a-Million, The DC MomsThe Broad Side
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