Life insurance. It’s one of those topics that you likely prefer not to think about. However, if you have debts, memorial wishes, and loved ones to care for, a life insurance policy for parents is an essential step of preparation. Once you take that step, you can gain significant peace of mind and financial security for yourself and your family. While you can make adjustments at any point, you can also “set it and forget it.”
With plenty of responsibilities already on your plate, you may feel overwhelmed by the idea of end-of-life planning or unsure about what you need regarding coverage. This article quickly outlines the meaningful benefits of life insurance and equips you with how to calculate the coverage you need to protect your family.
The Financial Security of Life Insurance
Life insurance operates as a financial safety net for parents when you (or your own parents) complete your journey here. Here are the key ways adequate coverage would serve your family:
- Backfilling income – Life insurance can help replace the parent’s income, ensuring your family can maintain their lifestyle.
- Covering childcare and education costs – From daily needs to long-term expenses like college tuition, life insurance can provide guardians with resources for care and educational opportunities for the children.
- Paying off debts – Many parents have debts, such as a mortgage, car loans, or credit card debt—liabilities that life insurance can eliminate for the surviving parent.
- Funding household help – Whether the parent earned a modest or significant income, life insurance can allow you to hire help to maintain stability in the family’s routine.
- Final expenses and emergency funds – Memorial services are an important part of the healing process that life insurance can help fund.
While life insurance can’t replace the loss of human life, it will reduce the financial strain on your loved ones during the challenging transition. Meanwhile, it will also give you invaluable peace of mind knowing they are financially protected.
How to Calculate a Life Insurance Policy for Parents
According to a study by Life Happens, 41% of parents with children under 18 say they don’t have enough life insurance to cover what their family would need. The consequences of an insufficient life insurance policy for parents can be profound, leading to financial hardship, a reduced lifestyle, an increased likelihood of government assistance, legal and estate complications, and emotional distress.
To ensure your family is in a strong financial position in the event you can no longer provide for them, here’s a guide to help you calculate the right amount of coverage.
1. Consider Income Replacement
How many years would your family need to replace your income if you were no longer here to provide for them? A general rule of thumb is multiplying your annual income by 10-12. Following this rule provides a cushion for daily expenses, bills, and lifestyle maintenance. If you have young children or a spouse who doesn’t work, you may want to aim higher to cover additional years.
2. Factor in Major Expenses
- Mortgage: Include enough coverage to pay off the balance of your mortgage or at least a significant portion of it.
- Education: Consider the potential cost of college or other educational expenses for your children, including the trend of increases.
- Debt: Account for any outstanding debts, like car loans, credit cards, or personal loans.
3. Estimate Final Expenses
End-of-life expenses, like funeral costs, often range from $7,000 to $15,000 or more.
4. Account for Your Family’s Future Needs
How much income do you and your spouse bring into the household, and what are each of your needs? A life insurance policy for parents should support the other’s needs and provide a safety net that enables them to adjust to a new lifestyle if necessary. Think about child care, household help, and other expenses that may arise if one of you were no longer around to manage these responsibilities.
5. Adjust for Savings, Assets, and Existing Insurance
Take stock of current assets, savings, or other insurance policies (like employer-provided life insurance) that would contribute to financial security if something happened to you.
Subtract these assets from your estimated needs and use the remainder as a basis for your coverage amount.
Re-evaluate Over Time
Life insurance needs can change over time as your family grows, children become independent, or your financial situation changes. Calculate your needs today, and revisit this formula every few years or after major life events to ensure you maintain adequate coverage.
Types of Life Insurance for Parents
You may be aware that there are different types of life insurance available. The three most popular life insurance policies are term life insurance, whole life insurance, and universal life insurance. Every payment plan has its unique way of payout, and the best option for you should be based on your personal needs. Here are some ways to think about the options from a parent’s perspective:
- Term Life Insurance – Good choice for parents who want coverage during their child-raising years.
- Universal Life Insurance – Good choice for parents with long-term financial planning goals.
- Whole Life Insurance – Good choice for parents who prioritize guaranteed coverage and wealth-building.
- Instant Life Insurance – Good choice for parents needing coverage quickly, though it may not meet long-term needs.
A Partner Through the Delicate Process
An insurance broker can play a crucial role in helping parents select the right coverage and type of life insurance by offering expertise and a personalized approach to match their financial needs and family circumstances.
Our team at Eber & Associates offers expert advice and an easier buying experience for personal insurance. We have walked with hundreds of people through the delicate process of finding and establishing the appropriate life insurance policy for parents, and we can do the same for you or anyone in your life. With us, buying insurance is smart and simple, giving you peace of mind that your family is secure and protected.
