As a mom, you are the ultimate protector of your family.
So it's disheartening to find that women tend to have half the life insurance coverage men do. In fact, 78% of women report being behind on guaranteeing their family would be protected if something were to happen to them, according to the Worth Survey for Women.
Life insurance offers peace of mind because it provides money your family could fall back on. It can also be an inexpensive way to leave an inheritance for your children, or to pay off any leftover debts.
That's why it’s important to make sure you have the right policy for your specific needs.
The Facts of Life (Insurance)
There are two broad categories of life insurance: “term” insurance and “permanent” insurance (which includes whole and universal). For either policy, the amount of coverage you take out will be determined by personal factors—your family’s annual living expenses, how much debt you have, how much you'd like to leave for your kids, how much you expect your funeral and final hospital bills to cost, etc.
Term insurance is a temporary option that gives you life insurance coverage for a predetermined amount of time, based on the idea that your kids can be provided for in other ways after some time (people often get term insurance until their child is 18 years old). This can be relatively inexpensive when you’re young and healthy, but the cost increases as you age. Most people get term insurance, and it meets most people's needs.
Whole Life Insurance
Unlike term insurance, this is intended to cover you until you die. The annual premium you pay stays the same for the life of the policy—making it relatively expensive when you’re young, but the overall cost of the policy evens out over time as you pay less than a comparable term insurance policy would be when you’re older. Whole life is much more expensive than term insurance (often ten times as much), so affordability is a major factor in considering whole life insurance.
Universal Life Insurance
Universal life insurance provides coverage until you die, but with greater flexibility in the cost of the premium and the death benefit than whole. Universal is like a hybrid between term and whole—it provides some of the benefits of whole, but with more flexibility (the price is also in between the two).
For whole and universal (together referred to as permanent life insurance), part of the premium you pay gets invested and accumulates as cash value, earning over time (a guaranteed rate for whole, a variable rate for universal). Because of the cash value, these are sometimes touted as term insurance with a built-in investment vehicle, but it's best not to get caught up in using life insurance as an investment vehicle. This is because there are lots of high fees and commissions built into the rates. You are better off getting the cheapest rate you can find, and investing that money in mutual funds, which will give you better returns in the long run.
How Do I Get Started?
These are the steps that are usually involved in obtaining life insurance:
- First, shop around different insurance carriers—call their 800 numbers and talk to agents about rates. Alternatively, find a life insurance broker that you trust (ask friends for referrals), and ask him which company and package would work best for you. Just keep in mind that some brokers work only with specific companies, so it's best to always do your own research and compare rates. Brokers also make more commission on whole policies, so don't get pushed into more than you need (more on what type of policy you need later). At this stage, you are only getting an estimate of a rate—after the underwriting process, you will get the confirmed rate.
- Once you find a rate and company you like, you will start the underwriting process—you will receive a large packet of forms to fill out, on your and your family's health history. IMPORTANT: Never lie on these forms (i.e. put down that you don't smoke when you do). If, upon your death, the company finds that you have lied on your forms, your life insurance claim will be invalidated.
- The company will send out a healthcare professional to your home or workplace to do a health assessment. The person will take blood and urine samples, and take your measurements and blood pressure.
- After a few weeks, you will receive the confirmed rate from the life insurance company. Depending on how your physical and medical information turned out, this rate might be higher or lower than your estimate.
- At this stage, you will decide whether to proceed with the policy. When you send in your first check, your life insurance coverage will begin. If you don't like this rate, you can always begin an underwriting process with another company and compare rates.
How Much Should I Get?
Here’s a rough rule of thumb for how much coverage you might want:
Current Income x 7 = Minimum $ Amount
Keep that number in mind when talking to a life insurance professional—some tend to oversell in order to make a better commission.
Which Policy Is Best for Me?
Generally, if there are no special need situations in your family, term life insurance should suffice, as it's the least expensive, and works fine in most situations. If something changes during this time (a family member gets sick or into an accident and will need ongoing care, and you want to extend the term of your life insurance), you can usually extend the term, or even convert to whole or universal. Just make sure to do it while your policy is still effective (don't wait until it expires), so that you can claim the best rates—some companies will let you convert based on your original underwriting, which will have better rates since it will be based on a younger, healthier you.
You may have specific needs, though. Here’s how to start thinking about what you and your family might need if you’re a:
Could your spouse maintain your family’s current standard of living without your salary? We’d recommend some kind of policy regardless, but you might not need an expensive plan if your spouse could keep your family afloat solo.
Consider: A term policy to pay off your major debts and help with your kids' education. Depending on how young your kids are, you might need a 15- to 20-year policy.
If you’re chiefly responsible for the household, imagine your spouse getting by without you. He might be able to pitch in more himself, but could friends or family help with the kids? If not, consider how much he’d have to pay professionals to replace the tasks you normally do. You’ll want life insurance to cover that.
As a side note, make sure your partner has enough insurance to cover you, too. Your partner should have a policy that would provide for you until available retirement benefits start (usually around age 65) and your kids until they’re able to take care of themselves. If you’d choose to go back to work, you’ll still want to build in a time cushion in today’s economy that will allow you to find a job.
Consider: Assigning a dollar value to everything you do for your family by heading to our "What's Your "Mom" Salary" calculator. If your husband’s salary couldn’t cover that and still leave room to pay for monthly bills, consider a term policy valued at that amount for at least as long as you expect to be the main caretaker for your kids.
For you, life insurance is non-negotiable. You’re the sole provider, so get a policy that would sustain your kids financially if you weren’t able to. Note: If you depend on child support, you should also make sure the child's father gets life insurance, so that if something happened to him, you and your child will be taken care of.
Consider: A term policy, at least until your children graduate from college. Aim for 10-15 times your annual income. That’s more than the rule of thumb, but you’re the only person providing for your kids.
Mom of a Special Needs Child
You’ll need to provide as much financial support as you can to help your child succeed. If your child's needs are severe and he will not be able to support himself financially as an adult, you will need some type of permanent life insurance. If you expect your kid will need lifetime care, such as living in a private group residence, there may be large healthcare costs down the road. Having extra life insurance is especially important.
Consider: Depending on your age and health, a convertible term policy may be your best bet. This gives you the affordability of term insurance now, with the option to convert to a whole life or universal life policy later on, without having to re-prove insurability (this is a key point as we all become less insurable the older we get—which leads to more expensive policies). Look into special riders that pay benefits if you’re incapacitated and can’t take care of your child. Your personal coverage will depend on your income and whether you’re married, but aim to have at least seven times your salary.
Mom of Grown Kids
Assign a dollar amount to your financial obligations now that your kids are out of the house (living expenses, remaining debts, continued support to your kids), and think about how much you want to leave for them when you’re gone.
Consider: Give some thought before allowing a preexisting term policy to expire, since insurance is much more expensive to buy when you’re older. If you’re married, consider the (morbidly-titled) “second to die” insurance, which pays your beneficiaries after both of you have passed. If you’re not in debt, single or your spouse could handle the bills by himself, and the kids are out of the house and leaving an inheritance isn’t a priority (or is already taken care of), you probably don't need life insurance.