Many older adults will agree that their twenties were some of the best years of their life. Graduating college, backpacking across Europe, getting married, and maybe having a child (or three). While it is true that your twenties often bring on many great experiences, they can also bring on a lot of new responsibilities that your teen years did not completely prepare you for.
A couple of responsibilities young adults can come across in their twenties and thirties is getting married and having kids. While it is a great experience and will bring some of the greatest joys in your life, it also comes with commitments both emotional and financial. While young families are struggling to make enough money to put food on the table and gas in their cars, one of the last things on their minds is something like life insurance.
Life Insurance is Essential
For many young parents, life insurance seems like something that their folks should have. This thought process could not be any further from the truth. The reality is that life insurance is absolutely essential for young families because they rarely have enough money saved up to weather out a sudden death.
The best way to think about why life insurance is important is to imagine what would happen financially if you or your spouse were to suddenly pass away. After getting past the initial thought of that awful alternate reality, what would the household finances look like? Would the rent or mortgage still be paid? Would the electricity stay on? Would the college savings for the kids continue? It is a grim thought, but it has to be planned for.
Who Needs to be Insured?
The short answer is: both parents.
At first glance it may seem that the person that makes more money should be insured since their financial contributions matter more. Or if one person stays home with the kids and therefore does not bring in any money, they could be excluded. While it is true that the primary breadwinner needs to be insured, the secondary income provider or stay-at-home parent needs to be insured as well.
Lets look at an example of a family that has one parent work outside the home and earns all the income, while the second parent stays home with the kids. We have already established that the working parent needs life insurance, but what about the stay-at-home parent? What happens if that parent were to pass away? What would happen to the kids? Who takes care of them? Who drives them to practice? Who cleans the house? Who takes care of all the chores that person did?
Most of these tasks would essentially have to be outsourced, unless the kids are old enough to pick up all the slack. Childcare would have to be obtained, cleaning people may need to be hired, and someone will need to do the grocery shopping.
For single parents it is even more important. You do all the work, bring in all the income, and take care of all the chores. Do you need life insurance? Yes, and you need it yesterday.
How Much Insurance is Needed?
A good rule of thumb when shopping for life insurance is a payout that would equal about 10 times what the person either brings home in dollars, or what it would cost on an annual basis to replace their services. Combined with a good investment strategy for the insurance payout, a family should be able to draw on the money for years, long past the point when the children are out of the house.
What Type of Insurance is Best?
While every family need is different, 95% of young families would be best served by going with term life insurance. Term life insurance is the cheapest and provides the most coverage. Other more complicated insurance products like variable life and whole life are complicated investment vehicles wrapped around insurance products that are expensive.
Eric Stauffer is an insurance veteran and helps individuals find the best products for their needs. He also reviews insurance companies like eHealthInsurance and GEICO, and provides buying guides that outline how to approach shopping for specific types of insurance.