Buying life insurance might not be a top priority for many new parents, with the demands of caring for a tiny human on their minds. But a new study suggests expectant parents could be skipping coverage on themselves for the wrong reasons.
When a parent dies without life insurance, the family’s grief is compounded by the costs they have to absorb. The median price of a funeral, viewing and burial is around $7,000, according to the latest figures from the National Funeral Directors Association. Life insurance payouts can cover that — and far more, including household bills that the deceased would have paid and college tuition savings.
“Parents don’t think about something unexpected happening to them,” says Marvin H. Feldman, president and CEO of Life Happens, an insurance industry organization. “Further, new parents, and many people in general, do not purchase life insurance because they overestimate the price of coverage.”
Three in 10 Americans expecting a child or planning to have one within the next three years think life insurance is one of the biggest costs of raising a baby during its first year of life, according to a Harris poll commissioned by NerdWallet. But a related analysis shows this isn’t the case: Healthy parents can buy generous coverage for just a little more than the cost of a year’s worth of diapers.
In the poll, people expecting a baby or planning to have one within the next three years were asked to identify the biggest expenses in baby’s first year. Thirty percent guessed that life insurance would be one of the biggest expenses, 37% cited child care and 50% included diapering items.
However, two healthy 30-year-olds could each purchase a $1 million, 20-year term life insurance policy for a combined annual premium of $762, according to the NerdWallet analysis of a baby’s first-year costs. A year’s worth of diapers and wipes cost slightly less, at $743, but child care was the most expensive category, estimated at more than $8,000.
This misconception about the price of life insurance isn’t surprising to Feldman. Sixty-four percent of respondents to his organization’s 2016 Insurance Barometer study said they hadn’t bought life insurance because of presumed costs. But when asked to estimate the price of a policy, the median guess was more than twice the actual expense.
Here are the facts on life insurance:
- You don’t have to spend a fortune. To save on the policy quoted above, choose a $500,000 payout. It would still likely be enough to cover many of the costs of raising a child for several years and college tuition.
- Term life insurance gets more expensive as you age and develop health conditions. The younger and healthier you are, the less you’ll spend on life insurance. And your rate won’t increase during the length of most term policies, so buying when you’re younger locks in the low rate.
Life insurance is an optional purchase, to be sure. But assuming you won’t need it could be a mistake.
Your child needs clothing, food and shelter, but once you’ve taken care of the necessities of your baby checklist, don’t write off this purchase without being fully informed.
View the complete results and methodology of the NerdWallet study and Harris poll.
The article Having a Baby? Don’t Skip Life Insurance Because of Cost originally appeared on NerdWallet.