Personal Finance

Why do so many parents lack life insurance and wills?

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Parents juggling work-life balance may be dropping the ball in an important area—financial planning.

More than a third of parents with kids younger than 18 (37 percent, to be exact) don't have life insurance, according to a new survey from of 1,000 adults.

Of those who are insured, half have less than $100,000 in coverage—which isn't enough for common life insurance aims of replacing the deceased parent's income, paying off the mortgage or funding the kids' college education, said Doug Whiteman, an insurance analyst at Bankrate. "We found it rather unsettling," he said.

"This should be a wake up," said Whiteman. "You really do need to sit down and think, what if something were to happen to me?"

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Apparently that's a question most of us don't want to think about—or not very often, anyway.

Earlier this year, a survey from found that only a little more than half of parents have a will and, of those, 60 percent haven't updated it within the last five years.

"Oftentimes young parents are transitioning into this role of greater responsibility," said Frank Paré, a certified financial planner and president of PF Wealth Management Group in Oakland, California. It's a shift to plan financially for dependents, from previously worrying about just your own financial future. "Managing that, things can get lost," he said.

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Life insurance is one of the first things parents should put in place. The rule of thumb is to have an amount equivalent to seven to 10 times your income, said Whiteman, but the details of how much and what kind of insurance will depend on your family's needs and future goals.

Next up: Draft, or revisit your will. That's important not just to make sure assets pass to your kids, but also to name a guardian to care for them if both you and your spouse were to pass away, said Karin Maloney Stifler, a certified financial planner in Solon, Ohio. "Without a will, the parents are basically giving their state the power to decide who raises their kids," she said. "I don't know a parent who would feel good about that."

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While you're at it, update beneficiaries on assets that transfer automatically when you die, like life insurance policies, many retirement plans and annuity contracts. Beneficiaries listed there trump even your will, so an out-of-date designation (say, an ex-spouse, or your sibling) would mean your kids aren't in line to get that cash, if that's what you'd prefer.

It's not all worst-case scenario planning. Parents should also revisit their budget. "Cash flow is king," said Paré. "Once the child comes, you have all these new expenses." Consider where you can shift funds to maintain retirement goals, and incorporate new aims such as child-rearing expenses and college savings. "You need to have those goals set to make sure you're on track," he said.