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New to parenting? Here’s how to get started on your life insurance policy
Bringing home a newborn involves so many firsts for that tiny bundle of joy—baby’s first bottle, first smile, first time sleeping all night.
On the other side of the coin, it’s also the first time most new parents not only find themselves completely responsible for the safety, well-being, and happiness of another human being, but also begin to recognize the need to ensure their loved ones will be protected even if the unexpected strikes.
That’s where life insurance comes in. Unfortunately, the process of obtaining coverage can sometimes feel daunting.
That’s why we’ve compiled the following concise, easy to understand checklist to help you navigate your way to a more stable and secure future for you and your growing family:
1. Start early by getting familiar with the vocabulary of life insurance.
When you begin looking into life insurance policies, you’ll hear a lot of industry jargon coming your way. In order to communicate what you need—and understand what you’re purchasing—take some time to familiarize yourself with these important insurance terms:
Term life insurance: Often less expensive than permanent life insurance, term life provides protection for a specific term or period of time, such as 15 or 20 years.
Permanent life insurance: Also referred to as “perm life” or “whole life,” this insurance lasts throughout your lifetime and pays a benefit upon your death.
Beneficiary: This is the person to whom your insurance benefits are paid upon your death.
Premium: The premium is the payment you make on a regular basis—monthly, quarterly, bi-annually, or annually—to the life insurance company to pay for your insurance policy.
2. Determine the amount of coverage you’ll need.
To figure out your coverage needs, add up your financial obligations—mortgage, education for children, car payment, etcetera. Now subtract the amount of your liquid assets—cash, bonds, investments, or any items that could be used to pay for your financial obligations upon your death. The difference between these two numbers is a good estimate of the amount of life insurance coverage you’ll need.
If you don’t want to spend time calculating all your financial obligations for years to come, a common rule of thumb is to purchase life insurance that is roughly 10 times your annual income. (If you plan to pay for your children’s education, it’s a good idea to add about $100,000 per child for college expenses.)
For more tips and information, check out these sample scenarios for buying life insurance.
Sometimes the most challenging part of purchasing life insurance is tracking down the paperwork buried in drawers throughout the house. Be patient with yourself, especially if you’re a new parent.
Devote small blocks of time to tracking down the required documentation. Even as little as 30 minutes a week can help you make solid progress.
Here are the documents you’ll need:
Proof of income
Proof of residency
5. Get a medical examination.
Make an appointment with the medical provider specified by your insurance agent. When it’s time for your appointment, be prepared to step on the scales, provide a urine sample, and blood work. You may also need to wait for the medical provider to complete paperwork and provide results of your exam to be sent to your life insurance company.
6. Wait for the underwriting approval.
After you’ve selected a policy and completed all the paperwork and medical exam, the next step is to wait for underwriting approval. Behind the scenes, an underwriter calculates how risky you’re going to be to insure. This process can take up to six to eight weeks, so it’s better to do this sooner rather than later.
7. Update your financial advisor.
Your life insurance policy can be an important part of your wealth plan, so be sure your financial advisor is informed about your policy. He or she will need to know what type of policy you’ve purchased as well as your designated beneficiaries and will take that information into account in creating and revising your ongoing financial plans.
Life insurance that rewards you for living a healthy life.