The coronavirus pandemic is frightening for everyone but parents especially have a lot to worry about – including what happens if they get sick and can’t take care of their children. It’s imperative that moms and dads are as prepared as possible in case things go wrong, which means taking these key money steps.
Purchase life insurance
It’s unpleasant to think about what would happen to your children if you pass away before they grow up but it’s imperative as COVID-19 sickens millions across the globe and leads to thousands of deaths. Raising a child is very expensive and you want to make sure your child is provided for – and college is paid for – if something happens to you.
A term life insurance policy can ensure your child’s care won’t become a financial burden. Term life policies are generally very affordable for healthy young and middle-aged parents so it’s best to buy coverage ASAP.
Make sure your policy will remain in effect until your child reaches adulthood and that you have enough coverage to enable your child and his or her other parent or guardian to maintain their standard of living after you’re gone. You should also factor college costs into account as well. One good rule of thumb is to buy coverage equal to between 10 and 15 times your salary but consider your own financial situation and your child’s needs when determining the amount of coverage to buy.
Fabric lets you apply for term life insurance in about 10 minutes. In most states, applicants can qualify for a plan immediately. Some require a health exam.
Create a will
Creating a will enables you to specify who should inherit, but it does much more than just allowing you to pass property to a particular child. If your kids are under 18, you can use your will to specify who should manage the money you leave them.
The Uniform Transfers to Minors Act is a simple way to use your will to name a custodian for funds you want your children to inherit since they can’t take control over those assets until becoming a legal adult. And, in some states, transferring assets under the UTMA ensures your kids are a little older than 18 when they get their full inheritance.
You can also use your will to specify who should become the guardian of your child if both parents pass away.
Review your college savings plans
There’s been a lot of volatility in the stock market lately due to coronavirus, and many people have seen their investment account balances decline. If you have money invested to fund your child’s education, make sure you’re confident in your investment strategy and have a good mix of different assets.
If it’s getting near the time your child will have to start making withdrawals to cover college costs, it may be time to change your asset allocation as you may not be able to wait out a bear market if economic recovery is slow.
College savings should always be a priority. A 529 college saving plan allows your money to grow tax-deferred, and distributions are tax-free when the funds are used to pay for qualified education expenses (such as tuition, fees, books and supplies).
If you’re hesitant to invest, you could consider an FDIC-insured 529 college savings plan. Unlike the stock market, these investments will not lose value. The potential return on investment from interest income is lower, but so too is the investment risk.
Create a power of attorney
You’ll need someone to make decisions on your behalf if you become unable to do so due to illness. By creating a power of attorney, you can give a trusted person authority to act on your behalf, managing your finances and making choices about the healthcare you’ll receive.
You need to create a power of attorney when you’re healthy and of sound mind so your chosen relative or friend has the legal right to act for you when necessary, rather than having to go to court and get a guardianship order after something happens to you.
Manage your Student Loans
Right now, thanks to the CARES act, many federal loans are on a temporary payment pause through September 30, 2020. These student loans are also not accruing interest during that time. If this applies to you, you can use your payments to grow your emergency fund during this period of uncertainty.
If you have student loans that don’t qualify for the automatic forbearance, such as private student loans, there are still options to pause payments. Contact your lender directly.
If you have high interest private student loans and are confident you will continue to be able to make payments, you might want to consider refinancing for a lower interest rate, which could help you save money. Keep in mind that refinancing any federal loans means a loss in federal benefits, including this temporarily payment pause. You’d also lose the potential for student loan forgiveness, payments based on your income and generous deferments (payment pause) in times of economic hardship and unemployment.
Check into your health insurance coverage
If you or your child get sick, you need to make sure you can afford essential care. Some insurers are waiving copays and coinsurance costs for coronavirus treatment but not all policies enable you to avoid big expenses associated with treatment.
Find out what your policy covers by contacting your insurer or reading your policy terms. If you have a large deductible or high out-of-pocket limit, save up money in a health savings account (if you’re eligible because you have a qualifying high-deductible health plan) or a regular savings account if you can’t contribute to an HSA.
If you’re eligible for a health savings account, you’ll have until the extended July 15, 2020 tax deadline to make contributions for the 2019 tax year. You could contribute now and benefit from a larger refund sooner as well as the ability to cover care costs with pre-tax funds.
Financial preparation is essential in a time of crisis
Taking these five steps can help you be prepared in case the worst happens. Check them off your list so you can focus on keeping your family safe and healthy without worrying about the financial fallout if something goes wrong.
At Savingforcollege.com, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.