Along with adding another member to your family, adoption brings many other wonderful changes for families. Adopting is a big step, so taking steps to feel financially prepared is a great way for parents to show love and support to their new child.
One financial area that parents should consider as they go through the adoption process is how their life insurance needs will change, and the best ways to navigate acquiring the correct coverage for their growing family.
Read below to understand some of the key ways parents can plan out a policy, and what options might work best for their specific situation.
Why is life insurance important?
While it is true that not every individual requires life insurance, adoptive families qualify as a group of people who will want to secure a reliable policy. This is due to the fact that life insurance acts as an income replacement in case of an unexpected passing of a financial provider to a household. So for families with children who are financially dependent on one parent or more, life insurance acts as a safety blanket that will ensure a family is financially protected regardless of an unforeseen death of a parent.
As the life insurance process can take a few weeks, proactively planning your policy can help ease the transition of welcoming a new child to your home and help reduce financial stress on adoptive parents.
What type of coverage is best for your family?
In order to fulfill the financial obligations that come along with adopting a child, new parents should first understand which type of coverage will best apply to their family’s needs. Life insurance isn’t a ‘one size fits all’ matter, so be sure to understand the different ways that policies offer varying benefits.
Many jobs offer some sort of life insurance benefits to their employees. Still, oftentimes it doesn’t provide adequate coverage that could fully replace the void from the passing of an income-provider. Similarly, adding a child to one’s family will increase the amount of coverage needed as a household. Additionally, it can be beneficial to account for future larger expenses such as college education costs for the child.
There are two main types of life insurance: term life and whole life. Life insurance rates are determined by many different factors—such as medical history, age, gender, lifestyle choices, and more. Because life insurance rates vary by company, new adoptive parents should take time to figure out how they can get the most affordable coverage and compare life insurance policies.
Term life insurance
Term life insurance is typically one of the more popular life insurance options. As this type of coverage lasts for a set amount of years, it is generally a more affordable option for families. If the policyholder passes away before the policy has expired, the death benefit would be rewarded to the beneficiary of the policy.
For a family working with a smaller budget during this adoption period, acquiring a term life insurance plan may be a good option to acquire the necessary coverage while not overspending. You will also want to take into account any current debts, mortgages, or extra financial cushions you may need when examining your life insurance needs.
Understand that term life insurance policies are for a set amount of years, therefore if you outlive your policy, you may have to purchase a new plan or consider switching to a permanent type of plan.
Whole life insurance
Contrary to term life insurance, whole life insurance is a permanent type of policy that never expires. Whole life actually builds cash value over the years, as an investment account would. Because of this, a whole life policy is generally 6-10 times more expensive than a term life policy.
This type of coverage could provide a great option for a family who is looking to incorporate their life insurance into other areas such as estate planning due to the cash value component. As this option is the more expensive option, it means that people tend to purchase inadequate converge with this type of policy. If whole life insurance is an appealing option, speaking to a financial planner about the correct amount of coverage needed could be advantageous.
Although life insurance can seem like an easy matter to push aside, as it may not be a topic you want to think about during the excitement of adopting a child, locking down plans now will grant new parents peace of mind for the future.
Know that adding to a previous plan or shopping for a policy altogether should be something to consider in the early planning steps of the adoption process. Because families will be ready to show their new child all the love and affection they have to give, don’t forget to also include life insurance as a resource to provide a bright future for one’s family.
