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Saturday, 29 September 2018 21:24

Baby Has Arrived...Now What?

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In 2017, the U.S. Census stated that a new baby was born in the United States every eight seconds. I’m not sure what the numbers will look like for 2018, but my family is now part of the statistics! We welcomed a baby boy into our family last month. A new dependent brings immense responsibilities, so I want to note all the items I am addressing in case it is helpful for other families.

Insurance

Health insurance – when you have a life event (i.e. have a baby, get divorced, lose a job, etc.) you usually have 30 days to modify your existing coverage. To add a new dependent, you will need a birth certificate or a letter from the hospital noting the birth of a child. As the former takes a few weeks to issue, the latter is provided within a few days and can be used to gain coverage. Work with your employer to ensure additional coverage is approved.

Life insurance – now that you have a new dependent, you will need to get life insurance. Ideally, you will want enough to pay off the house, cover child care, and potentially cover future college costs. Depending on your spouse’s work situation, you may want to get enough to supplement his/her daily living expenses, so they are not unnecessarily forced back into the workplace. An unexpected death is the quickest way to derail a well thought out plan, so make sure you have sufficient coverage. Please do not buy whole, universal or variable life insurance. All you need is a 20- or 30-year level term policy (where the premium is fixed). If you have more babies and need additional coverage down the road, you can get another term policy to supplement what you already have. I purchased a 30-year term policy when my wife and I got married (so she could pay off the house and have some fun money), then got another policy after four years to help cover my child.

Disability insurance – did you know that you are four times more likely to require disability insurance than life insurance (I’ve heard the number is even as high as 10x)? This will provide income to you and your family should you get into an accident and cannot work.

Estate Plan

Last Will & Testament – this is an important document that defines and dictates how your assets are allocated when you die. More importantly, it notes a legal guardian for your children. This person would care for your children until they are 18 years of age. I prefer to designate this person (with their permission) rather than have the courts pick this person for me. In order to assist in the creation of an Estate Plan, we have a number of estate planning attorneys we work with if you need a recommendation for someone who can help. For more information, check out our previous blog post titled What Happens to Your Stuff When You Die?.

One thing to note – the person caring for your children (guardian) may not be the same person you’d like to be the financial steward for your children. You can appoint a financial custodian to manage, oversee, and protect their inheritance.

Retirement Accounts / Insurance Policies

Beneficiary designations – be sure to add your new child as a contingent beneficiary. My spouse is the primary beneficiary meaning the money in the account would go to her at my death. If something were to happen to both of us, the contingent beneficiary would get our assets. If you have two or more children, be sure they (or a trust) are all listed to receive equal shares (if that is your wish).

College Savings

529 account – open a 529 account and start saving for college. If you are a resident in Indiana, the Indiana 529 account is the best in the nation. You get a max tax credit of $1,000 for the first $5,000 you contribute. It’s like putting in $4,000 and getting $1,000 from the state. Or thought of a different way, it’s like getting an instant 25% return on your money. I actually opened up a 529 account for my son last year to start getting the tax credit. He wasn’t born yet, so I listed myself as the beneficiary. Once I receive my son’s social security number, I will transfer the account into his name.

Create a Budget

Yes, budgeting sucks, but children are expensive (i.e. diapers, daycare, babysitters). Retirement is expensive. Living the life you want to live is expensive. Creating a budget helps you prioritize these competing goals. (For an alternate take on budgeting, see why we recommend ‘Reverse Budgeting’ in the blog post Ten Financial Hacks for Everyone I Know).

These are important items for all families with children to address. Happy to have a short phone call or meet for coffee if you have any questions.

Thank you for reading!

Alex Perkins, CFP®
Last modified on Friday, 14 December 2018 19:42