How life insurance can influence a new parent’s estate plan

Published By | May 1, 2023 | Estate Planning |

Adding a child to a family often means drastically changing the household’s budget and lifestyle. Whether a young child is the first in the family or the third, they will have financial and care needs that their parents must address.

Parents often structure their entire lives around giving their children the best care and opportunities. They also need to think about how to meet their children’s needs if anything happens to them in the future and put together estate plans to meet those needs. Life insurance can potentially play an important role in the estate plans of new parents who are hoping to meet the needs of their children posthumously if doing so proves necessary.

Life insurance can provide important funding

Parents often invest in life insurance policies that can help replace their wages for several years and provide some financial support for their children if they must go live with a guardian or will only have one parent to care for them.

The number of people in the family, the age of each family member, the household standard of living, the current debt carried by the parents and many other factors will influence how much life insurance a parent needs. They can use their policy to fund a trust for their children, to pay off their student loans and other debts so that the surviving spouse won’t have to worry about foreclosure if they die.

Some parents also consider purchasing life insurance for their children, but such policies aren’t always the best investment. Families can provide better support for new children by setting aside resources to cover funeral and burial costs, which is often what childhood life insurance policies cover. They can also start setting money aside for a college fund or a nest egg for when the child reaches adulthood rather than sending a premium to an insurance company every month.

Financial support is only one consideration

The resources provided by a life insurance policy are only part of what a child will need after their parents die. They will also need stability and emotional support. Parents need to think about how to protect the assets they want to transfer to their children and also who might serve as a guardian and act in their best interests.

Parents need to have a comprehensive approach to the estate planning process if they want to obtain the peace of mind that comes from knowing their children will live comfortably and have adequate help if anything were to happen to them. Seeking legal guidance can help new parents to protect their new family members and preserve their own peace of mind.