Start Filling the Money Bags! The Cost of Raising a Child is Why Parents Need Life Insurance
If these staggering numbers tell you anything this is it—you need life insurance. Here’s why:
Expensive . . . and more expensive
Raising a child is clearly not inexpensive. Any parent can tell you that. But the United States Department of Agriculture publishes an average estimated cost of raising a child from birth up to age 18 each year, and the numbers for 2013 were mind-blowing.
• The average cost of raising a child was $245,340;
• If you adjust that cost for projected inflation, the USDA says the number is more like $304,480;
• The rural South was the least expensive place to raise a child, coming in at $193,590;
• The Northeast predictably was the most expensive place to raise a child, averaging $282,480;
• Your income determines the cost of raising a child. Families making less than $61,530 annually could expect child-rearing costs of $176,550. Make more than $106,540? The average cost of raising a child soars to $407,820;
• These costs include food, housing, childcare and education, but they don’t include college costs;
• And guess what? A college degree isn’t cheap, either. According to the nonprofit College Board’s Trends in College Pricing 2014, the average annual tuition and fees for in‐state students in state colleges increased to $9,139 in 2014-15. Room and board added another $9,804. Average annual total charges at private, nonprofit four-year institutions rose to $42,419.
Growing families and the need for life insurance
Since prices never seem to go down, imagine the cost of raising a child born this year or in four years. And imagine raising more than one child! Now envision the financial hardship your family would face if you were no longer here to provide for them.
If you need any life event to put an exclamation point on the need for life insurance, a growing family is it. If you have life insurance—many have a limited amount through the workplace—you probably don’t have enough. And if you don’t have life insurance, what are you waiting for?
With cost an issue for so many young families, term life insurance can give you the largest amount of financial protection possible for the lowest cost.
Term Life is Cost-efficient
You may have heard there are two types of life insurance—term and permanent. In actuality, term insurance can have a term lasting up to 30 years, making it not quite permanent but also not here today and gone tomorrow.
Term life insurance provides a pure death benefit, plain and simple. But rates increase after reaching the end of the term, which is typically one to 20 years. Another type of term insurance called level premium term keeps payments steady over time. Premiums never increase with permanent insurance, either. Term life doesn’t offer cash value like permanent insurance does. Both, however, offer a death benefit.
A downturn in your health and bad poor health habits like smoking can raise term insurance premiums even higher upon renewal. In fact, poor health can disqualify you from buying the insurance altogether when you try to renew or even when you apply for permanent insurance. However, you cannot lose your existing permanent life insurance if your health takes a turn for the worse.
What’s the main advantage of buying term insurance? Price, price and price. It is extremely cost-efficient at younger ages. This means a 40-year-old nonsmoker can buy hundreds of thousands of dollars of coverage through a 20-year fixed premium term policy for about a dollar a day. That’s money well spent to financially protect a family should the unthinkable happen.
Check out quotes here to see how much term life insurance you can afford.
Look for These Features
If you only have the dollars to buy term life insurance, but would prefer to build the cash values in a permanent life insurance policy, buy the most coverage you can afford right now. That’s term life. But look for a term life policy that includes these features:
• A policy you can convert to permanent life insurance, should you want to switch to insurance with cash value in the future;
• Level premiums guaranteed over as long a period as possible, ideally 10 to 20 years and even up to 30 years. This gives you peace of mind that this one expense will not increase over the long haul;
• Options like a disability waiver of premium. This option gives you the ability to suspend premium payments should you become disabled and unable to work;
• A few companies offer a return of premium if the person insured by the policy is alive when the term expires. Caution, though. This type of policy costs a lot more than one that doesn’t return premium.
Don’t forget to figure out how much life insurance you need. Rule of thumb says you should choose a death benefit equal to between five and 10 times your annual salary. You might also customize your calculations by calculating your salary (and expected future increases), number of children, childcare costs and college costs. Also figure into the equation any special needs a child might have and your spouse’s potential earning power.
With the cost of raising a family so expensive, it can be hard to find even a dollar a day to buy life insurance coverage. But consider avoiding the cost of a designer cup of coffee each week, or a lunch for two each month. Then take these savings and apply them to a life insurance policy. Finding the money to buy this vital financial protection isn’t so hard when you know where to look.
If you have a new family, buy life insurance—any life insurance. Now it’s about more than you.
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