The importance of life insurance for fathers

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Father’s Day is a good time to think about everything dads do for their families. The biggest job fathers have is providing love and support. But most fathers also bring home a paycheck and contribute to the family’s finances.

While losing a father is a big emotional loss, there’s also often a significant reduction in household income.

Almost half — 49% — of American families would face financial hardship within six months if a wage earner died unexpectedly, according to the 2024 Insurance Barometer Study, which tracks consumers’ insurance perceptions. The report was produced by LIMRA, the life-insurance industry research organization, and Life Happens, a nonprofit life insurance education group.

For many families, the absence of a second parent requires hiring help for childcare, car maintenance, household repairs, lawn services and other essential tasks – the annual cost of which could quickly add up to thousands of dollars.

Life insurance can help financially protect families and lessen the financial pain if a parent dies.

But families usually have many questions about life insurance, including when to buy a policy and figuring out how much coverage they need.

Insure.com recently asked Todd Taylor, Senior Vice President and Head of Life Insurance Solutions at New York Life, the questions fathers usually ask about life insurance. His lightly edited answers follows

Insure.com: When is the right time for a father to buy life insurance?

Taylor: It’s never too soon to buy life insurance, as life insurance should be considered as part of any holistic financial strategy and is less expensive the younger and healthier you are. Life moments like marriage, buying a home, changing jobs or securing a promotion, or having children are often catalysts for purchasing life insurance, as these life events can impact who and what you are protecting, as well as how much income you would need to replace.

Life insurance can provide needed protection and peace of mind for many of life’s unknowns. While individuals decide to purchase a policy for many reasons, the choice to do so fundamentally comes down to one thing: protection for what and who matters most. Most people wouldn’t dream of not insuring their home, but in many cases your future income represents a much larger amount and potential loss than a home. Research shows this becomes more real for parents.

According to New York Life Wealth Watch research conducted in May 2024, parents report owning financial protection products at higher rates than non-parents; 45% of parents report having life insurance compared to 33% of non-parents.

In the same research, when asked what wealth means to them, parents place greater importance than adults on average in the following contributors to feeling wealthy: owning a home for themselves or their family, having the time or flexibility to care for loved ones if they need, and having sufficient life insurance to protect their family.

Beyond a death benefit, certain types of policies are an asset class of their own, and offer benefits while the policy owner is still alive – providing a source of liquidity in the event of an emergency or funds for education or retirement needs.

Life insurance can also play a strategic tax diversification role in retirement or when meeting a legacy planning need. For consumers who are maxing out traditional retirement vehicles, a permanent life insurance product with tax-advantaged cash value growth can be an additional tool for saving money for retirement.

A conversation with a trusted financial professional can help you determine when to buy life insurance and what kind of policy is right for you.

Insure.com: How much life insurance does a father need? How can he determine the best level of coverage?

Taylor: To determine how much life insurance is needed, fathers should think beyond using life insurance to cover funeral expenses, and also estimate the multi-year cost of income loss and/or replacing the work he is doing in the home, including anticipated increases for these costs.

For example, fathers should consider the cost of childcare. According to New York Life Wealth Watch research conducted in May 2024, on average, parents report spending $718.55 on their child’s education and $610.68 on childcare or daycare each month. 42% of parents with child education costs and 40% of parents with childcare or daycare costs report that their monthly bills have increased compared to a year ago.

Fathers should also evaluate the role of life insurance alongside other assets and investments, as certain types of policies can generate attractive cash value growth and tax diversification as part of the household’s overall investment portfolio.

As fathers consider what policy best meets their needs, it can help to answer four key questions: First, how much death benefit do they need? Second, how long will they need that coverage? Third, what is their budget (or how much monthly premium can they afford to pay?), and finally, what is their investment risk tolerance? A conversation with a trusted financial professional can help you determine what kind of policy is right for you.

Insure.com: What are some of the advantages of having a term life insurance policy?

Taylor: Term life insurance provides protection for a temporary period of time, meaning it generally has a lower monthly financial commitment than other types of life insurance.

While premiums for these policies tend to be lower, there is no additional cash value or accumulation component on this type of policy.

Some life insurance carriers offer an important feature on their term life insurance policies: a conversion feature. A conversion feature allows clients to convert their term insurance policy to a permanent policy, regardless of health, for a limited amount of time. This feature enables buyers to benefit from lower initial premium payments but still gives them access to purchase a permanent policy with the opportunity to build cash value later. 

Insure.com: What are some of the advantages of having a whole life insurance policy?

Taylor: Whole life insurance provides lifetime protection through guaranteed fixed premiums, death benefit and cash value accumulation. Whole life is ideal for individuals who want guarantees and the ability to accumulate savings, along with not having to worry about future changes in health and the need to be underwritten again in the future. Certain whole life policies are also eligible for annual dividends that can be received as cash used to reduce or pay premiums, or be reinvested into the policy increasing the total amount of coverage.

In general, whole life insurance should be considered if you are looking for:

• Permanent lifetime death benefit protection
• Fixed, predictable premiums that are guaranteed not to increase
• Guaranteed cash value accumulation that grows tax deferred and can be accessed, under certain conditions, tax-free, to meet a variety of financial goals
• Additional potential cash value and death benefit growth through dividends
• Tax-free life insurance death benefit

Beyond the specifics of the policy, it’s worth considering other factors about the insurer including:

• The insurers’ track record
  • At its core, life insurance is protection — a hedge against the unexpected — and you are paying premiums in exchange for the promise that the insurer will be there when you need them most, so the financial strength and track record of the company backing your policy is critical. 
• Customer service
  • Be sure to evaluate the different avenues to contact the insurance company should you have questions. You might ask whether service professionals are available by phone and digital channels and if there is an online dashboard where you can manage your policy.
  • Beyond ensuring help is available after you purchase a policy, it’s also critical to ensure you have access to trusted advice and guidance before you buy. Life insurance isn’t separate from your broader financial strategy and the help of a financial professional is essential to ensuring you’re developing an approach that meets your needs today and in the future.
• Conversion flexibility. How easy is it to change?
  • Life can be unpredictable and while term insurance can cover your loved ones through a critical period of time, you may decide later on that you need permanent coverage or that access to cash value is an important piece of your financial strategy. You’ll want to understand how term conversions work on your specific policy, how much time you have to make the decision to convert and whether additional underwriting is involved. 
• A range of payment options.
  • It’s important to understand how often you’re required to make premium payments and whether and how often you can change the frequency of payments.

What our expert says

Todd TaylorSVP and Head of Life Insurance Solutions at New York Life.

‘To determine how much life insurance is needed, fathers should think beyond using life insurance to cover funeral expenses, and also estimate the multi-year cost of income loss and/or replacing the work he is doing in the home, including anticipated increases for these costs.’

John McCormick

 

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John was a deputy editor at The Wall Street Journal and had been an editor and reporter at a number of other media outlets where he covered insurance, personal finance, and technology.