Insurance is something you should have to protect yourself in the event of an emergency or unexpected loss. Insurance replaces items or lost income; pays for services, including medical treatment; or provides cash reimbursement when the policy is cashed out. As a parent it is important to have insurance policies in place so that if something catastrophic happens, your children will be cared for.
Significance
No one likes to think of unfortunate events, accidents or catastrophes happening as we get older, but they can and do happen. Having an insurance policy in place will help you or family members recover from the financial burden that is left behind. A life insurance policy should cover all of your final expenses as well as pay off your debts, including your mortgage and credit card balances. You may also want to consider having a substantial amount of the policy available for cash disbursement to cover living expenses for your children should something happen to you or your spouse.
Types
A basic life insurance policy should be one part of overall estate planning. Estate planning involves having a plan in place as to how your property will be transferred, who will handle all business affairs and how your children's property will be distributed, explains the Colorado State University Extension. In addition to paying for expenses and dispersing funds related to a loss, you should have other insurance policies in place at all times, including short- and long-term disability insurance, health insurance, home owner's insurance and automobile insurance.
Benefits
The biggest benefit to a life insurance policy is that it should cover the cost of your funeral expenses so your surviving spouse or children do not have to pay out of pocket. You can designate who will get the money and how it will be dispersed, explains Investopedia. You can choose multiple beneficiaries, including a contingent beneficiary who will become responsible for the funds should the primary beneficiary become deceased.
Some policies allow you to borrow against the policy. This is beneficial if you are experiencing financial problems and need cash to pay for expenses when you are still alive.
Having other insurance policies in effect, including auto and homeowner's, will save you from draining your savings account if your home or car suffers damage or is destroyed.
If you lose your job or become disabled, your long term disability benefits will help you maintain your current lifestyle so you are not a financial burden on other family members, including your children.
Time Frame
With home, auto and health insurance policies, you pay premiums as long as you have to insure the items you still owe on (e.g, a house with a mortgage or a car with a car loan) or own outright. With life insurance, you can choose when to buy; some people start in their early 20s or when they first have children. You have two choices when deciding to purchase life insurance -- whole life or term life insurance. Whole life is a type of life insurance that doubles as an investment, often times with fluctuating rates, whereas term is generally a low fixed-rate policy that has the same payout despite inflation, explains Smart Money.
Potential
Protecting your children even after you are deceased should be a priority. Depending on your assets, you may decide whether your life insurance policy just covers final expenses or if you want to build a nest egg to leave for your children. The consequences of not having any type of insurance policy can be financial hardship for you and your family, especially if you should be unable to care for them.
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