The birth of a child brings drastic changes to a family’s financial situation. Budget’s change, routines change, jobs may change – there is a lot going on. This article will review key financial planning considerations after the birth of a child.
Review Life Insurance
Life insurance is a tool to protect a family against the financial impact that the death of a member of that family could have on the rest of the household. The addition of a child brings an increased importance to adequate life insurance to protect the family. Typically, term life insurance will be the most cost-effective option. You may have group life insurance offered through your employer that can be considered but you will want to check portability and cost of continuing the policy should you leave employment. When deciding how much insurance coverage to get, it is prudent to consider the following:- Liabilities – Are there any debts like a mortgage that you would want to eliminate upon your passing?
- Income – How much does your income contribute towards the household budget? How many years worth of income would you want to replace?
- Family Expenses – Do you want to pay for college or other expenses for your children?
- Extra/Other Expenses – Do you want to cover the cost of your funeral? Are there other expenses you would want to pay for?
Review Health Insurance
After the birth of your child, your baby is covered for 30 days under your existing health insurance. During this period, it is prudent to examine the health insurance options that are available to you and update your health insurance coverage. The birth of your child is considered a life event that will allow you to enroll in a new insurance if your existing insurance is not ideal for your new situation. Considerations include whether one of the spouses will stop working and lose access to their employer health insurance options, whether your pediatrician will be considered in-network on the selected option, and if there is a desire to use vehicles like an HSA or FSA in which case certain insurance types would need to be selected.Review Disability Insurance
During the course of your career, you are three and a half times more likely to be injured and need disability coverage than you are to die and need life insurance. If you do not currently have disability coverage or have less disability coverage than is prudent or would be desired, this would be an ideal time to evaluate and update your coverage. While every individuals family circumstances are different and should be considered, a general rule of thumb is that your disability benefit should be about 60% of your gross pay. When paid using after tax dollars, the benefit you receive would be tax free. Other items to consider when evaluating your disability policy are the elimination and benefit periods, whether the policy is own-occupation or any-occupation, and if the policy is non-cancelable.Update your Household Budget
The addition of another person to your household will prompt some major changes to your household budget. While some expenses may go down (you may not be going out to eat as often as you did pre-child), you will experience many new and rising costs. Some of the costlier one-time expenses you will encounter include:- Medical bills associated with the birth of the child
- Stroller
- Car Set
- Crib
- Nursery Furniture
- Day care or nanny (or the impact that one spouse staying home will have on income if you choose to go that route)
- Food and formula
- Clothing
- Diapers