For Christmas Eve I have a special guest post for you, kind readers. Back in August Lucille Rosetti helped us with financial and legal issues for those helping seniors. These are issues I haven’t had to deal with personally so my advice is based upon an incomplete worldview.
Today Lucille gives powerful advice for young parents. One point needs to be made before you read ahead. Lucille discusses life insurance needs for young parents. (See note in comments section for more.) While this community tends to refrain from life insurance, I don’t consider it worthless. There are times life insurance is a good idea. I’m not a fan of cash value life insurance with (very) rare exception. That doesn’t mean it shouldn’t be considered, however. Your facts and circumstances will determine your insurance needs.
You can read more of Lucille’s work on her blog, The Bereaved. She is also the author of Life After Death: A Wellness Guide for the Bereaved.
4 Financial Planning Steps Every New Parent Needs to Take
When you become a parent, another person’s life is in your hands. It’s scary and exciting all at once, and you only start to feel confident in your new role once you have a few years of experience under your belt. However, there’s one big step you can take now to ease your fears, and that’s handling your financial planning.
Financial planning is about more than funneling money into a retirement account. When you have a family, you need to take steps to provide for your family if you pass away. Without safeguards in place, a single unfortunate event could put your family’s security and well-being at risk. If you want a financially secure future for your children, these are the four things you need to do.
Write Your Will
A will does more than distribute your property after you pass away. If you have children, your will is the vehicle for naming the person who will care for your minor children if you die. In addition to naming a guardian, your will allows you to appoint a person, known as a trustee, to manage money left to your children until they become adults.
If both parents die without a will, the courts appoint a guardian for minor children. Babycenter warns that in some states, an administrator is appointed to manage your children’s money until they turn 18. If you prefer to name someone you know and trust to look after your children, a will is a must.
Update Your Health Insurance
Most health insurance plans require a new baby to be added within 30 days. If you miss that window, you may end up with an expensive gap in coverage. If you and your spouse have insurance through employer-sponsored health plans, compare plans to determine which offers better coverage for the price. If you’re unhappy with your current health plan, you can also use this time to switch plans because having a baby qualifies for a Special Enrollment Period.
Buy Life Insurance
Life insurance may not have been on your radar when you were child-free, but now it needs to be. A life insurance policy pays a cash benefit to your surviving family if you die during the coverage period. This essential financial support allows your family to make up for the loss of income and keep a roof over their head if the worst happens. Stay-at-home parents should purchase life insurance too, because the high cost of childcare poses a significant financial burden if the primary caregiver passes away.
Don’t just purchase the cheapest life insurance policy you find. There are different types of life insurance policies, and it’s important to understand the difference so you can purchase the right policy for your family. While many parents opt for a term life policy because of the lower premiums, spending more on a whole or universal life insurance policy lets you accrue cash value, turning the insurance policy into an asset that you can sell for cash in retirement.
Pre-Plan Your Funeral
You don’t need to pick out flower arrangements and headstones when you’re still young, but you should have a plan to pay for your funeral. If you don’t, you could put your family in the unfortunate position of struggling to pay for a funeral while beset with grief. At a typical cost of $7,000 to $9,000, that’s no small burden. There are several ways you can set aside funds for a funeral. You can name your spouse co-owner of a joint savings account, create a payable on death account and name a beneficiary, purchase funeral insurance or pursue another pre-pay option. Do your research to select the option that makes the most sense for you and your family.
Thinking about life’s what-ifs may not be pleasant, but it is necessary. If you fail to plan for the worst-case scenario, you could leave your family in a difficult situation without the necessary resources. Make these financial planning steps a priority when your child is born to protect your family.
Image via Unsplash
More Wealth Building Resources
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A cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.
Worthy Financial offers a flat 5% on their investment. You can read my review here.
Tuesday 25th of December 2018
I agree with the article as well as what ArmyDoc wrote. I have envelopes with titles/passwords/acct numbers, etc. on them. Easy to locate and figure out.
I'm going to expand a bit on what the ArmyDoc said and also offer some good tips on what I've learned through the years.. And yes, we hate to discuss or even think about funerals or life insurance but at some point, there will come a day when we have to confront it head on. If not now, then when? So, here we go....
I have a "POD" on my bank accounts whereby if I pass, I have designated who gets the cash in these accounts without going through probate and holding up anyone from accessing these funds. Just tell a banker you want POD placed on your accounts and name a beneficiary. I learned this after my mom passed... Probate can take a long time to clear and if a beneficiary needs money to bury you, that POD bank account is very quick access without the red tape.
Getting life insurance on the kids isn't a bad idea. It's cheaper when they're young. But here's what someone told me: If your child goes to college and they (and you) signed a big student loan, what if the student has a terrible accident and doesn't make it? That lender won't care and will want their loan paid back. And where will you get the cash for that? I took out whole life AND term policies on my kids. When they get older, they can always cash out the whole life for money to use on a home or whatever or keep it and have it used for burial.
My last bit of advice. What if you had access to whole life insurance on you and the family and after paying the premiums for 20 years, you never had to keep paying a premium again? AND the premium per month was covered for free until the policy was either cashed in or used to bury that person? If anyone belongs to a Catholic church, please consider joining the "Knights of Columbus." It's a volunteer organization that does activities throughout the year to help needy people/families/,homeless/disabled, etc by doing fundraisers and volunteering time to work at shelters, soup kitchens, etc.. AND this group is self funded and offers all kinds of life insurance policies and annuities for you and your family. They DO NOT advertise any of this. You must be a member of the K of C to have access and what they offer is pretty darn incredible. I wish we knew this sooner when we joined our church!! That's where I got my family's life insurance policies as well as me and my husband's annuities. And I can't complain about the premiums I pay for the term and whole life policies. I pay quarterly for each one and it's reasonable.
Tuesday 25th of December 2018
Nice post. I have deployed to war zones a couple of times and would add: 1) Write a letter to your spouse and one to each child telling them how much you love(d) them. 2) List of all accounts with addresses and passwords. 3) Fireproof box or safety deposit box for all the papers listed 4) no need for funeral insurance. Just increase your term life coverage - it’s way cheaper.
Monday 24th of December 2018
Happy Christmas to you and your family first of all!
This is the first time I am hearing someone from the FI community mentioning Whole life insurance in a positive sense and that too from someone as respected as you. Although the use will differ for each individual situation but do you think it’s something worth carrying (I am asking obviously because I committed the mistake of buying one and have been thinking of ways of getting rid of it for a while ).
Monday 24th of December 2018
Ashish, I made a point of mentioning life insurance in the intro because so many hate the stuff. For the record, so do I!
However. . .
Cash value life insurance has a place in certain trusts and in certain business policies (key-man and buy-sell agreements come to mind).
I do NOT recommend cash value life insurance for young families. You would need to work hard to convince me it is the right move. But I never discount the possibility because I've been wrong a time or two in life (if Mrs. Accountant is any guide).
There are better options, IMO. Still, I didn't reject the guest post because it is still good material even if I don't agree with one aspect of it.
So don't worry. You will not hear me beating the drum for cash value life insurance. (Though I have a post in the queue on annuities. And when I publish that one I bet 99.7% agree with me the situation I outline is a perfect reason to own annuities. My goal isn't to parrot what everyone else says. My goal is to expand from the common knowledge base so people understand when these tools do work.)