What is the Right Life Insurance Plan for Parents?

Life insurance can be an excellent way to ensure your partner and children are financially secure and taken care of. If you pass away, they receive a significant death benefit payout to replace your income, pay off debts, and set aside funds for other expenses.

There are plenty of policies to choose from, but the best for you depends on your financial situation, needs, and goals. To help out, this article will dive into three options available to parents, then cover a few factors parents should consider when shopping for life insurance products.

Types of life insurance for parents to consider

Here are some life insurance policies parents should consider:

1. Term life insurance

Term life insurance can cover you for a period such as 10, 20, or 30 years, based on your preferences. Longer term lengths cost more in premiums. When your life insurance expires, you’ll have to renew your policy if you have a renewal rider or get a new policy to continue coverage. However, term life insurance premiums are affordable, so this policy may be a good choice for parents on a budget.

2. Whole life insurance

Whole life insurance can cost more than term life insurance, but it’s a permanent life insurance policy, meaning it covers you for life. It also has a cash value growth component. Part of each premium you pay goes into the cash value, which grows tax-deferred at a fixed interest rate.

You can withdraw from or borrow against your cash value when it’s large enough. If you surrender the policy, you’ll get the cash value minus surrender charges. As a result, whole life insurance can work well for families who have complex financial needs and can budget more for lifetime coverage.

3. Universal life insurance

Universal life insurance covers you for life and has cash value that grows based on current market rates. This type of policy also lets you adjust your premiums and death benefits. Keep in mind that raising the death benefit will increase the cost, while lowering your death benefit will reduce your premiums.

Additionally, universal life insurance may let you pay premiums with cash value once you have enough. Overall, universal life insurance can work well for your family if you need more flexibility.

What parents should consider when getting a policy

Here are a few factors parents should evaluate when looking for a life insurance policy:

1. Their income and debts

Many policyholders get life insurance to help loved ones replace their income and pay off debts. This will help your spouse cover expenses and stay out of debt if you pass away. With that in mind, look at your total yearly income and outstanding debts. Many recommend getting a death benefit worth 10 to 15 times your annual salary¹.

2. Their family size and their children’s ages

Family size and your children’s ages both play a part in your coverage needs. For example, a family with several young children may need much more coverage. They have more children to take care of, and those children will be in the household longer.

On the other hand, if you only have one child and they’re a teenager, you might be able to get a smaller death benefit or a cheaper term life insurance policy. This is because you may not need as much coverage, nor will you need coverage for as long.

3. Their financial planning needs

Families with complex financial needs may consider a permanent life insurance policy for the peace of mind of lifelong coverage and the cash value component. This component can help you save money while protecting your family if you’ve already maxed out other savings and investment accounts.

Get the right life insurance policy for your family

The right policy for you varies by several financial and family factors. Smaller families with lower budgets who don’t need lifelong coverage may opt for term life insurance. This helps them secure significant coverage at an affordable cost.

On the other hand, parents with higher incomes, larger families, and complex financial needs may benefit more from permanent policies like whole and universal life insurance. They cost more but offer lifelong coverage and cash value.

Evaluate your income, debts, family situation, and financial planning needs before deciding on a policy. Once you’ve done so, shop for multiple quotes to find the best rates on the coverage you need.