There is a baby boom among my friends and family. As we discuss pregnancy and new births, I noticed that conversations with new parents often oscillate between elation and anxiety, especially for first-time parents. Along with the joy of bringing a new life into this world comes the immense responsibility of caring for and raising this other person who is totally dependent on you.
In response to a personal request from a college friend who is expecting, below is a list of 5 things new parents or young families should consider to ease their anxiety and plan for the care of their little ones should something unexpected happen.
1. Will
It is extremely difficult to confront our mortality and make contingency plans for our death. However, when you have young children, it is essential to face those fears and plan for your children’s future should something happen to you.
Contrary to popular belief, a will does not only provide your wishes and instructions regarding who gets your house, furniture, jewelry, and antique book collection should something happen to you.
A will could also be used to designate the guardian(s) for your minor children should something happen to you and your spouse (or the child’s other biological parent).
No one is good enough to raise your children but if you or your spouse dies prematurely without a will, a court will appoint guardians for your children. By designating a guardian in your will, you ensure that your children are cared for by the people you trust to raise your children in the same parenting style and/or with the values that closely reflect your own.
2. Life insurance
Life insurance is one of the best ways to provide for your dependents if one or both parents die. In determining whose life to insure and how much, consider the financial hardship for the family should that person dies, the total amount of household debt, and estimated college tuition for your children. However, even a stay at home spouse’s death could cause a financial hardship if his or her death would require increased household expenses in the form of full-time child care for example.
3. Disability insurance
Statistics show in the US a disabling accident occurs every second. What if it happened to you or your spouse? Disability insurance is a form of insurance that insures the beneficiary’s earned income against the risk that a disability will make working, (and therefore earning), impossible. It includes paid sick leave, short-term disability benefits, and long-term disability benefits.
4. College Savings plan
Start saving for college now. Section 529 of the Internal Revenue code created an education savings plan operated by a state or educational institution. The savings plan is designed to help families set aside funds for future college costs. The funds grow tax-free as long as it is used for qualified college costs such as tuition, books, school fees, and room and board.
5. Coverdell education savings account
Formerly called education IRAs, an ESA allows you to make an annual non-deductible contribution to a specially designated investment trust account. Your account will grow free of federal income taxes, and if all goes well, withdrawals from the account will be tax-free as well. You will need to meet certain requirements in the years you wish to make the contributions, and in the years you take withdrawals. It is another vehicle targeted to your children’s education expenses.
PRACTICAL TIP: Look at your income and expenses and determine how much coverage you would need in the event of a disabling injury or death. Think of who you would like to be your children’s guardian in the unfortunate event that something happens to you and your spouse. Speak to a trusted attorney and financial advisor to discuss the options available to you. If you already have a plan in place, congratulations and remember to review it periodically.