Things You Might Want to Start Worrying About Now: Wills and Insurance
October 20, 2011
Having a baby can get in the way of establishing your rock-solid legacy as the next Steve Jobs or most-doughnuts-eaten-in-a-single-seating queen, but it is time to get serious about some of the more concrete logistics of your legacy, namely a will (and an accompanying trust, if you live in California) and some life insurance.
These are unpleasant subjects on a good day and, during the hormonal, nesting days of pregnancy, probably even more unwelcome. I had to stop watching Law & Order while I was pregnant because it was just too dark. I wasn’t about to take on a lengthy decision-making process related to my and Ramon’s mortality. But if you can stomach it, like moving, it’s easier to do before the baby arrives than afterwards. See if you can at least knock off one of the two at least before Little Darling makes an appearance. It’s a favor to your future self.
Life insurance is probably the easier of the two since it doesn’t involve making the difficult decisions about who will take your child in the event of…well, let’s leave it unsaid. There are two main decisions you’ll have to make. First, between term and permanent insurance. Term is for a specific period of time (usually 20 or 30 years), at which end point, the policy expires if it hasn’t been paid out. Permanent insurance is much more expensive but has no expiration, so it will pay out eventually, no matter what (hence the added expense). My only advice here is to relay our financial advisor’s note that she has never heard from any client who was glad to have invested in a permanent policy (you can borrow against it and essentially use it as an investment vehicle but the rate of return at least in your childbearing years is not better than other investments). That said, if you have piles of money lying around to get a permanent policy, great, do it.
The other decision is for how much you’ll insure yourself and your partner. Ten times your annual income is the industry guideline, but in reality, parents buy as much insurance as they can afford. The younger you are, the cheaper it will be (and those rates will be fixed for the length of the policy), so if you’re under 35 and in good health, get as much as you can reasonably afford now and thank your lucky stars you got in early! I got my policy pre-40 and it’s a fraction of Ramon’s, who is over 40. Think about how much your lost income will be needed until baby is 18 or 22, realize that that is an impossible number to fit into your monthly budget, and shoot for what will let you and your partner sleep at night.
Wills and trusts are harder, mostly because you’ll need to choose someone to take care of your child and, unless one of you has wonderful and young parents whom you both adore, this is going to be a tough one and possibly a source of arguments between you and your partner. I suggest having a brief, time-limited conversation in which you both throw out the names of people you’re considering. Don’t respond. Just put them out there for both of you to think about. Come back to it in a couple of weeks.
Something to consider: your life insurance money will go with your child, so the financial status of your child’s potential guardians aren’t the #1 priority. That said, I was wisely advised to consider how difficult it might be for financially-challenged guardians to raise a child with more money in the bank than they have themselves, especially if they have their own kids on that separate budget too.
Also consider what you think of prospective guardians’ kids (if they have them). If their kiddos are hellions, even if you love the parents and their parenting philosophy, do you want your child growing up with siblings who are trigger-happy with the squirt gun or, worse, bullies? Loving your child is a must for a prospective guardian, but these more pragmatic questions may help you decide among your frontrunners.
Oh – and make sure you ask your prospective guardians before writing it all up in ink. They may not be up for it and that’s fine. Just keep the conversation quiet, private and give them an easy way to say ‘no’ without affecting your friendship. After all, taking on another child is a big deal and you want them to want to do it.
In California, all wills automatically go into probate unless there is an attached trust. Your state might be similar: check around. All you need to know about probate is that it takes a while and costs your estate money, so skip it and do a trust at the same time as you do a will. You don’t need to know all the ins and outs before meeting with a lawyer: they will help you sort it out. You can get both in place for a few hundred dollars if you have pretty cookie-cutter needs. If you have substantial property or a complex landscape financially, do hire an individual lawyer but be prepared to pay in the $5-10K range.
Even though they’re inexpensive, be careful about using online forms for serious legal documents. I don’t know a lot about this, but I’ve heard mixed reviews about how iron-clad DIY wills/trusts should there be, God forbid, challenges to it later. You might check with a lawyer friend, if you have one, about your own state’s restrictions and requirements.
These are emotionally difficult questions to consider and not many friends or family want to discuss financial matters openly, so direct advice can be hard to come by. Go easy on yourself and start with small educational steps. My first foray was great: I went to a seminar overview offered by my mom’s group center. It was run by someone who knew quite a bit about all of the above and had been in the life insurance market. Parents’ or community centers often offer these seminars for a relatively small fee.
On the life insurance question, set up a meeting with your existing insurance agent (car, home, etc.) about life insurance (coverage with the same company can yield discounts) and be up front that you want a clear overview, quotes for a number of levels (length of time + amounts of coverage) all within reasonable health categories (not Bionic Man level rates, which they often offer first – most companies call it “Super Preferred”), and that you won’t be buying a policy at that first meeting. If it goes badly or if you just want a second opinion, meet with another agent elsewhere. Big companies may charge a little more, but unknown, cheaper ones may go under – remember, you’ll need them to be around for the next 20-30 years! For wills and trusts, ask for reputable legal references from your local parents’ boards or, again, at new parents’ centers.
Unfortunately, addressing these issues won’t get any easier by delaying them and, at least for the life insurance, it may well get more expensive. As well as riskier and, as such, detrimental to your peace of mind, so bite the bullet and get it done as soon as you can. You need these things in place to safeguard your new little one: it’s the financial equivalent of putting up safety gates at the top of your stairs and locking up the bleach.
I’m thinking about you and wishing you well! Good luck!
In San Francisco, Day One offers overview seminars periodically.
(disclaimer: I have not attended one of Amy’s seminars yet)