The Major Money Move No One Wants to Talk About — But Absolutely Should
Did you know parents will spend about $245,000 raising a child to adulthood?
And that’s one child.
When you’re planning to start a family, you’ll probably run through a massive list of expenses you know you’ll have to cover.
… diapers, food, clothing, bottles, furniture, food, diapers, “Frozen”-themed toys, college savings, allowance, 18 years of holidays and birthdays, food, diapers…
You and your spouse, partner or co-parent are all set, though.
You’ve considered the costs and planned ahead. You have a nest egg, a trove of supplies, a network of friends and family for support and a home fit to grow with your family.
There’s just one more thing we’re not talking about: Do you know what would happen to your family if you were to suddenly die?
Do You Need to Consider Life Insurance?
If your family depends on your income entirely -- or in addition to your partner’s -- that could be a huge blow financially.
“Life insurance is something that many people, especially healthy and young professionals, put off or don’t consider at all,” says Tanisha Sykes at SoFi. “Perhaps it’s due to a sense of invincibility, or maybe a notion that life insurance is for our parents.”
You don’t want to talk about it. I get it! Frankly, I don’t even like going to the doctor, and I definitely don’t enjoy managing my health insurance. Self-care is quite a lot of work.
But when you’re starting a family, you have to think beyond yourself. You’re responsible for kids now, and maybe even the well-being of your partner.
Plus, it’s actually smart to buy when you’re young.
“Typically, youth and excellent health go hand in hand,” SoFi Product Marketing Manager Marcos Fernandez told Sykes. “Since most health-related issues tend to develop later in life, a young person can usually expect to pay a lot less in life insurance premiums before chronic conditions take hold.”
It’s Not For Everybody
You want to make sure you’re prepared -- but you probably don’t want to spend money on something you don’t need.
Simply put, life insurance protects your dependents if you die unexpectedly and they lose your income. It could cover their cost of living or just funeral costs.
Either way, it’s meant to keep your family from worrying about money during a difficult time.
That means it makes the most sense to take a life insurance policy on the breadwinner in the family, especially if you have kids. If you don’t have kids and your partner contributes equally to household income, they’re less likely to need insurance.
Jay Ferrans, president of JM Financial & Accounting Services in Southfield, Michigan, suggests life insurance can benefit anyone with dependents.
Without dependents, you typically don’t need it. However, Ferrans points out it could be a good idea to purchase life insurance when you’re young -- to lock in lower rates -- if you plan to have kids in the future.
Dr. Beard, the blogger behind Beards & Money, calls life insurance “money that says ‘I love you’ to your family beyond the grave.”
Beard’s wife is a stay-at-home mom. If he’s not around, he wants her to keep her job.
“I want her to have the freedom to continue to stay home, and to keep her and my children’s lives moving along as normally as possible,” he writes. “So I have built a pile of ‘I love you money’ that should allow her to do just that.”
For $30 a month, Beard would leave his wife $772,000. For this frugal family, that means she and their kids could maintain their lifestyle.
“Basically, I’m investing a total of $7,000 over 20 years to absolutely ensure that my family is provided for if I die during that time,” Beard explains. “That’s a GREAT deal.”
And it’s a deal your family will be grateful to have if they need it.
“Nobody plans to die,” Ferrans says. “But when you do, and you leave a family, and you don’t have any life insurance because you wanted to put a deck on your house, turns out that wasn’t a good decision. … You really need to prioritize what’s important in your life.”
The bottom line, he says, is “you purchase life insurance based on what you’re trying to accomplish.” Your family situation and life goals will dictate how much life insurance you need and when is the best time to buy.
If you have life insurance coverage through an employer, that’s a good start -- but it may not be enough, Fernandez says.
“Many employer-based term-life policies are valued at around one to two times the employee’s salary. Yet, the industry recommends life insurance coverage of seven to 10 times annual pay.”
Your plan also may not follow you if you leave your job. Private life insurance, which isn’t tied to your employment, sticks with you regardless of your employer.
How Much Does is Cost to Buy Life Insurance?
Just like health or car insurance, the cost of life insurance is based on a lot of variables -- but may not be as expensive as you expect.
Term life insurance covers you for a set period of time, usually between five and 30 years. It’s designed to pay out a set benefit to your beneficiaries in case you suddenly die.
The length of the term you sign up for depends mostly on your age and your dependents’ age. For example, if you’re 30 years old, you might consider a 30-year term, which would cover your family until retirement age.
For example, through SoFi, a 30-year-old male in excellent health in California can purchase a 10-year, $500,000 term life insurance policy for under $15 a month.
That’s $500,000 -- about 10 years’ average salary -- for less than $200 a year.
The application process is also less cumbersome than it once was.
“Thanks to advancements in technology, researching and applying for life insurance online is now very convenient,” Fernandez explains.
For examply, you can apply for term life insurance with SoFi, issued by Protective, without a medical exam -- and be approved for coverage up to $1 million in about 20 minutes.
Is it Worth The Cost?
My favorite motto is “expect the best, but plan for the worst.”
Of course you don’t expect to die -- you know, unexpectedly. But life insurance lets your family know you have a plan, just in case you do.
Let’s be honest: We all spend $15 a month on much less valuable stuff. Five coffees. One lunch out with coworkers. An HBO NOW subscription. The latest paperback novel.
And you can get a quote in about two minutes.
It’s a pretty small price to pay for your family’s peace of mind.
As Beard says: “I love you, honey. I had enough sense to cut back a latte or two per week so that you could be financially set forever if I should die.”
Your Turn: Will you buy life insurance for your family?
Sponsorship Disclosure: A huge thanks to SoFi for working with us to bring you this content. It's rare that we have the opportunity to share something so awesome and get paid for it!
Dana Sitar (@danasitar) is a staff writer at The Penny Hoarder. She’s written for Huffington Post, Entrepreneur.com, Writer’s Digest and more, attempting humor wherever it’s allowed (and sometimes where it’s not).