| Constructing Your Insurance Safety Net continued... |
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| Don't assume "the breadwinner" of the family is the only one who needs life insurance. Stevens says that many young families obtain life-insurance coverage for the spouse who works outside the home and earns a salary, but not for the one who stays at home with the kids. That's a mistake. Of course there would be a huge emotional cost for the family if the spouse who provides childcare dies. But there would also be an economic cost, as the family may have to pay an outside provider for childcare. |
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| Stevens recommends a term life-insurance policy for most parents in that situation. Unlike a permanent (or "whole") life-insurance policy, term life-insurance policies are designed to cover you for a specific time period, such as 10 or 15 years, until your children are capable of caring for themselves. While term-life policies don't build a cash value as permanent policies do, they're quite inexpensive, particularly for people in their 20s, 30s, and 40s. |
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| Take a pass on life insurance for the kids. Many insurance firms actively market life insurance for kids. On the surface, it may seem attractive, because children's life-insurance policies are usually reasonably priced. But that's for a good reason: You're not likely to use them. "The typical young family with kids can find better uses for its money," Stevens says. |
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| Make sure your insurance coverage--both for you and your kids--stays up to date in the event of a divorce. It's important to make sure your insurance needs, and those of your children, are covered when you split. If you don't work outside the home, for example, you'll need to obtain your own health and disability insurance. |
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| Stevens says that couples who divorce are increasingly having insurance coverage written into the divorce decree. If your spouse provides alimony and/or child support as part of your divorce settlement, for example, you may want to write in a clause stipulating that he obtain life and disability insurance, which will protect you and the kids if anything should happen to him or her. |
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| Unfortunately, keeping your insurance up to date is a work in progress. With each life change--a new baby, a divorce, a new job--you'll want to reevaluate whether your existing insurance coverage suits your circumstances. |
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| If you have a financial advisor or an insurance provider you trust, though, you already have a big head start; he or she can advise you on adding or subtracting coverage as you go along. Additionally, the Internet makes shopping for insurance products a lot easier than it was in the past. SmartMoney.com, for example, provides a nifty clearinghousethat will help you price insurance policies and compare coverage. Insure.com is another independent source for basic information on insurers and policies. |
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| You'll also want to do a bit of research on any insurance provider you choose, to make sure the firm is in solid financial health and will be able to honor its obligations. Check to make sure that your insurance provider receives a high rating from at least three of the four big ratings agencies: |
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| A.M. Best & Co. |
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| Standard and Poor's |
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| Moody's |
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| Duff & Phelps |
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| If an insurance provider doesn't get high marks for credit worthiness and its ability to pay its claims, shop around for one that does. |
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