The months leading up to a new addition to the family are exciting ones. And while your clients who are expecting their first child may be overwhelmed with picking cribs and strollers, it’s up to you to help them get their financial house in order. Here are a few steps for new parents to take to prepare for baby:
Life insurance policies
When your clients only have their spouse to worry about, financially speaking, a life insurance policy can ensure bills will be paid and necessary expenses covered in the case of the unexpected. But a new baby entering the picture changes things greatly. While going over insurance policies with your expecting clients, make sure they understand how much funding they will need should one or both of the parents become disabled or unexpectedly die.
Here are the two most common scenarios you may face with your clients and how life insurance can help:
Both parents are working: If both parents of the new baby are working, ask whether they will be able to continue paying for their mortgage, utilities, property taxes and homeowners insurance on a single salary, all while continuing to save for retirement and their child’s education. If not, work with them on finding a life insurance policy that will ensure they can reach their financial goals if they lost the income of one parent.
One parent is working, one is caring for baby: In a single-income household, it’s easy to express to your clients why having a sound life insurance policy is absolutely essential for the working parent. However, it may be slightly harder for your clients to understand why life insurance is just as important for the non-working parent because they generally don’t bring in any monetary income. But work out a budget with your client to help them see the value of having one parent stay at home – find out the costs of full-time child care in your area as well as any other responsibilities the stay-at-home parent has. Bringing in a cleaning service, having groceries delivered and other tasks that a suddenly single parent with a new baby now needs can add up quickly.
Once your clients have a solid life insurance policy, it’s time to address and update their estate plan. The first and foremost aspect to address is guardianship.
Should your clients no longer be able to care for your child, they’ll want to have someone in place to take over as their legal guardian. Otherwise, the court system will be responsible for assigning custody, which means your client’s kids may end up being raised by a family member that your client may not have picked. Added to that is the strain that is placed on any family in these circumstances. In short, the most important thing your clients can do for their children in their estate plan is ensure a legal guardian is assigned. Also, encourage your clients to speak with the person or people whom they are granting custody about these plans for their children.
Then, there is the matter of inheritance. If your clients still list parents or siblings as beneficiaries, it’s usually a good idea to remove it to make sure the assets they have to their name are left to the spouse and children. Finally, work with your clients to establish how they can reduce the impact of estate taxes. Remind them that though current federal policies may leave them free from the burden of estate taxes, laws change constantly, so they need to be prepared.