U.S. Census data(1) show that July and August are the most common birth months for Americans, meaning that, at the beginning of the New Year, many families learn - or begin to tell others - that they will soon have an additional person to provide and care for.
Experts say it's important to plan now for the baby's arrival and the child's impact on the family's future financial needs.
"The news of expecting a child and the arrival of a baby are major life events that trigger a review of your financial strategy or prompts you to start taking planning seriously to make sure your family finances are safe and secure," said Melissa Millan, senior vice president, U.S. Insurance Group, Massachusetts Mutual Life Insurance Co. (MassMutual). "Given the fact that funding a private college education for a child born in 2010 may require more than $450,000(2), it's a good idea to sit down with a financial services professional and review the changes that impact the financial stability of a growing family, especially protection against unforeseen events."
An important place to start is with life and disability income insurance. Make sure that both parents are adequately insured so that if anything happens to either the mother or father, the rest of the family will have the resources to carry on.
"As families grow, parents often don't think about the need for disability income insurance coverage if they become too sick or hurt and unable to work," said Millan. "They also may forget to update the amounts of life insurance they carry. Yet with every passing year - and every new child - the family's expenses and obligations, such as future college education and retirement costs, grow and need to be taken into account."
In addition to considering the amount of life insurance coverage needed, families should also consider the type of life insurance that will work best for them. There are two basic types of life insurance: term and permanent. For those who only have a need for coverage over a certain period of time to cover a specific cost, for example, a 30-year mortgage, term insurance may be one good option.
For those who prefer added flexibility and lifelong security, permanent insurance - such as whole life insurance - can be a good choice. Whole life insurance's death benefit is guaranteed, and whole life insurance offers predictable premiums and guaranteed cash value growth. The cash value of whole life insurance policies also creates financial flexibility(3) in the event of unexpected life events, such as a job loss, or to help cover future costs, such as college tuition. Additionally, although not guaranteed, dividends can help offset the cost of whole life insurance.
"For many families, the best solution is a combination of both term and permanent insurance," said Millan.
Other areas to review with a financial services professional are:
Long term care insurance;
Education savings; and
Retirement planning, among other areas.
For parents without the means to afford life insurance on their own, there are still ways to help protect their families. MassMutual's LifeBridge program provides free term life insurance policies to qualifying families; MassMutual pays the policy premiums. The benefit from these life insurance policies is put in a trust and will help pay for the education of children if their parent or legal guardian dies during the ten-year policy term. To learn more about LifeBridge and its criteria to qualify, visit www.massmutual.com/mmfg/pdf/LifeBridge_FAQ.pdf
As with so many things in life, experts offer the advice to start early. "Expecting parents should not wait for the day that the baby arrives to financially prepare," said Millan. "Start early. Start now. If you're going to spend quality time selecting a theme for a nursery and the 'right' car seat, dedicate the same attention to your family's and child's financial security."
To learn more about laying a strong financial foundation for growing families, contact a local financial professional in your community or visit www.massmutual.com/productssolutions/individualsfamilies/lifestages/havingchildren.
Founded in 1851, MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyholders. The company has a long history of financial strength and strong performance, and although dividends are not guaranteed, MassMutual has paid dividends to eligible participating policyholders every year since the 1860s. With whole life insurance as its foundation, MassMutual provides products to help meet the financial needs of clients, such as life insurance, disability income insurance, long term care insurance, retirement/401(k) plan services, and annuities. In addition, the company's strong and growing network of financial professionals helps clients make good financial decisions for the long-term.
MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives. MassMutual is headquartered in Springfield, Massachusetts and its major affiliates include: Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; The First Mercantile Trust Company; MassMutual International LLC; MML Investors Services, Inc., member FINRA and SIPC; OppenheimerFunds, Inc.; and The MassMutual Trust Company, FSB.
(1) Tejada-Vera B, Sutton PD. Births, marriages, divorces, and deaths: Provisional data for March 2009. National vital statistics reports; vol 58, no 7. Hyattsville, MD: National Center for Health Statistics. (2009)
(2) MassMutual College Savings Calculator (www.massmutual.com/mmcalcs/CollegeSavings.html). Assumes tuition of $25,143, room and board of $8,989, an 8 percent rate of return and a 6.5 percent education cost inflation rate.
(3) Access to cash values through borrowing or partial surrenders will reduce the policy's cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.
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