I'm working through my pregnancy "to-do" list and coming in at No. 2 is buying additional life insurance. I thought this would be easy. I'd make a couple of phone calls and a few weeks later I'd have new coverage for my husband. (We're just buying a policy for "Dad" since most companies won't sell a pregnant woman a policy.) But now that our finances are a bit more complex, purchasing a policy is more complicated and expensive than I bargained for.
I'm no novice when it comes to buying life insurance. I've already gone through this process twice before and I know exactly what I want. But this time around we also plan to place our policy in an irrevocable trust. That's because we want to make sure the proceeds don't become a part of our estate, get taxed and leave our children with less money than they'll need should something happen to my husband and me.
Rates are Rising
Since we last purchased life insurance, premiums have gone up about 10% to 15%, according to AccuQuote.com, an online insurance broker. While this isn't the end of the world, it is a bit disappointing considering we were already going to pay more than we did four years ago simply because my husband is older. So it's more important than ever that we shop around for the best rate.
Also, prices will likely continue to rise. So it's better that we -- or you if you've been thinking of buying coverage -- don't procrastinate and wait six months to purchase a policy.
Our Coverage Needs are Higher
We've also decided to purchase an amount of coverage that would make many parents blush. The general rule is that people need five to 10 times their income in coverage. But this number feels much too small to me. If you do the math, a family would need more like 20 times income to fully replace a breadwinner's current contribution to the household.
While insurance companies are generally comfortable insuring people under the age of 40 up to 30 times income, according to AccuQuote.com, the paperwork will take a bit longer to process than it did the last two times we purchased policies.
Opening a Life Insurance Trust
Here's where the process gets complicated. As I mentioned earlier, we want the new policy owned by a trust. While my lawyer assures me that this is easy to set up, it feels like a big hassle. It turns out that my husband can't even start the application process for the new life insurance until the trust is set up. This may set us back a few weeks. (Baby arrives i just seven weeks!)
I won't go through all the necessary steps we need to take to open a trust. If you're interested in setting one up, you'll need to hire a lawyer who can walk you through the process. But what I will tell you is that before I can do anything else, I need legal documents, an Employee Identification Number (EIN) from the IRS, and a separate back account just to fund the trust.
The good news is that once I set up the trust, I can fairly easily transfer my other life insurance policies into it. I will then have piece of mind knowing that my estate is better protected from unnecessary taxes. This is especially important since no one knows what will happen to estate taxes in the future.
Once all of this is completed, I'll then report back on my buying experience. In the past I've used traditional agents to buy my insurance. This time around I want to try an online site (AccuQuote.com) to see if it more convenient and provides me with the most competitive price.
For More Nesting Blog Posts:
Nesting: Time to Buy BPA Free Baby Bottles
Nesting: Considering a Move to Save Money
Nesting: 10 Tasks for Second Time Parents
Nesting: My Pregnancy and Health Insurance Headaches
Yellow Booties image by Tare Panda, CC 2.0.