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Balancing life insurance between parents is fairly straightforward once you know what you’re doing. Since everyone’s financial situation is different, you can use this article like a choose your own adventure story. Skip down to the section that fits your lifestyle, but feel free to peruse other sections to see what things might look like for you if your situation changes.
If none of these apply, check out this straightforward online calculator from Ladder, which can help you estimate your realistic coverage needs.
Two full-time working parents
When both you and your partner are generating household income, your life insurance policy should, at the highest level, replace the income you each generate or are expecting to produce over the term of your policy. If you want to go a level deeper, you can look at who covers which expenses (or where your individual income goes).
If your funds are combined in a joint account, consider who pays which bills to get an idea of who covers which costs. Perhaps one of you pays the mortgage and the other covers all other living expenses like utilities, groceries, clothing, and car repairs. Or maybe one of you subsidizes your baby’s daycare and the other covers all other expenses. Think about what you each are responsible for so there’s no unnecessary overlap, and then use that information to complete a life insurance calculator to estimate coverage.
If you each have life insurance through your workplace, make sure it’s enough to cover your family’s financial needs (hint: it probably isn’t).
One parent working full-time, the other not
If one parent is working full time while the other runs the show on the home front, the working parent who’s generating income will most likely have the larger policy. That parent should make sure that their coverage encompasses all family debts, caretaking, and education expenses. However, it’s important to make sure the non-working or part-time working parent is also insured for an amount that would fund the cost of covering all the responsibilities they currently oversee (think cook, babysitter, driver, cleaner, household manager – parents at home are superheroes).
When all the responsibility suddenly falls on one parent, it can be overwhelming. Anticipating the support you would need and providing the financial backing to do so can be extremely valuable. Having a financial safety net can provide a buffer that allows a parent to take time off or decrease their workload to spend more time with family during difficult times.
In this case, you run the show – but you know that already. You also know how critical it is to make sure all your family’s needs are taken care of. Consider any debts you have (e.g., mortgage, student loans, car loans), as well as child care costs, future education costs, and any caretaking costs for other family members that would need to be covered. That way you can make sure your policy would sufficiently cover these responsibilities.
Doing this now allows you to feel reassured that you’ve established a good financial set-up for your family. You might want to consider consulting with an attorney, who can make sure your will and/or trust designate someone to make financial and caretaking decisions on your behalf, so that your family members will have what they need.
Being thoughtful about how much coverage each person in your household carries can help ensure you have set your family up for financial stability. It may also help you free up money that can be used for other purposes.
If you have any questions or are interested in learning more about a policy, Ladder provides new parents with a decision on life insurance coverage in just a few minutes, entirely online. It’s the simplest way to purchase important financial protection for your family.
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