Using Life Insurance to Provide for Your Kids
Life insurance may be a good source of income for your children if you die. Here's what you should know.
At some time or other, all parents worry about what will happen to their children if one or both parents were to die prematurely. Often, life insurance is the first place parents turn when these worries arise. Although life insurance may be a good source of income for your children if you die, before buying a life insurance policy, you should carefully consider whether or not you really need it, what type of policy is best, and who should manage the proceeds on behalf of your children.
How Much Life Insurance Do You Need, If Any?
Before buying a policy, consider all sources of income for your children if you were to die while they still needed financial support. Those sources might include:
- the property you leave behind
- Social Security survivors benefits, and
- grandparents or other family members.
Keep in mind that if you are wealthy or have affluent relatives who would step forward to take care of your children, you may not need life insurance. Or, if you're like most folks and are struggling to pay for your car's brake job or your kid's braces, you can't afford to (and shouldn't) divert much of your current income to cope with the fairly remote possibility that you may die prematurely.
What Type of Life Insurance Should You Buy?
Avoid expensive cash value life insurance (whole life, universal life, and variable life) policies that offer a lump-sum payment after a certain period of time (20 or 30 years, for example) or after you reach a certain age (often 65). This lump-sum payment is sold as a long-term savings/investment feature and it does nothing to affect how much money will be available to your child if you die in the next few years.
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