Insurance Q&A: How much does it cost to raise a child?
by Efin Advisor | October 15, 2009
When thinking about life insurance coverage, a central question for parents is “How much does it cost to raise a child?” The U.S. government has answers.
Middle-income U.S. parents of a child born in 2008 can expect to spend $291,570 for food, shelter, and other necessities to raise that child over the next seventeen years, up from the 1960 low-low price tag of $25,230, and $204,060 in 2007, according to a report from the U.S. Department of Agriculture (USDA).
According to the USDA’s report, Expenditures on Children by Families, providing housing represents the largest expenditure in raising a child, averaging $69,660 or 32 percent of the total cost over the seventeen year period. Food and child care/education were the next largest expenditures, averaging 16 percent of the total cost. Transportation — driving the kids here-and-there — accounted for 14 percent of the cost.
USDA notes that the cost estimates in the 2008 report did not include the medical costs associated with childbirth, and that some of the highest modern-day costs, such as child care were “negligible” in 1960.
The More you Have, the More you will Spend
The report also notes that total family income affects the cost of raising a child. A family earning less than $56,870 per year can expect to spend a total of $159,870 on a child from birth through high school. Similarly, middle-income parents with an income between $56,870 and $98,470 can expect to spend $221,190; and a family earning more than $98,470 can expect to spend $366,660. Keep these costs in mind when you shop for the best rates in life insurance.
While inflation may not rise every year, the cost of raising a child certainly does. It’s hard to believe that the government doesn’t take that into account when calculating Cost of Living increases,
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Life insurance protection is the best safety net we know of to insure the cost of living does not explode over the cost of dying!
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I’d be interested to know the costs of raising a child in a family of more than one child. There may be some economies in having three children, but not very many. In fact, one might argue that more kids get more expensive (per child) since the parent’s time is divided among all of them.
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It’s been passed on from generation to generation that “THE MORE THE MERRIER”…..each child was perceived as a “blessing or a gift” to a couple. It’s just sad to realize that – not by choice – that conception has been drastically change in our present society. Having another child, now means….additional expenditure to the family. WIth the computation presented, a child now is comparable to something that has a price tag on it – that IF ONE CANNOT AFFORD – ONE MUST CHOOSE NOT TO HAVE.
Sounds really negative but (reality check)…it’s true. Great post, thanks for sharing.
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Having a child or children is a big responsibility for all the parents.Actually having life insurances for our children is one advantage.But giving them all the care is one best protection for them.
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An unexpected occurrence, such as a death, disability, or other personal loss, is certainly not something for which you can easily plan. Yet, the financial ramifications can be staggering—not only to you, but to your family, as well. Therefore, it is important to make a personal risk management plan part of your overall financial strategy.
Insurance, in all its varied forms, is simply a method for managing risk. In order to plan an effective insurance program, consider what risks you and your family are exposed to and how financial loss would affect you. For each risk exposure, the key elements to consider are the severity and frequency of loss.
All Risks are not Created Equal
Some risks may be so small that you decide to accept full responsibility for any potential loss. In insurance language, you “self-insure” for such risks. For example, it is rarely cost-effective to carry collision coverage on a ten-year-old automobile. Collision coverage generally pays actual cash value, and since a ten-year-old car may have little current fair market value (FMV), it is common to self-insure in such cases. In making this choice, you assume full responsibility for any accidental damage you may cause to the vehicle.
In other situations, the risk may be so large (or the cost of any potential loss so great) that the best strategy is to try to avoid the risk entirely. You practice risk avoidance in daily life when you say something is “not worth the risk.”
Sometimes, risk can be reduced. For example, installing an automobile anti-theft device or home security system is a strategy for reducing the risk of loss.
Risk Transfer and Risk Sharing
Buying insurance coverage is a method of transferring risk you cannot afford, or choose not to accept. Even in situations of risk transfer, it is common to share some risk. For example, the deductibles and premiums you pay for insurance are a form of risk sharing—you accept responsibility for a small portion of the risk, while transferring the larger portion of the risk to the insurer.
Between the ages of 25 to 35, for example, couples are just starting out—getting married, establishing families and careers. During these years, the death of one partner could seriously jeopardize the surviving spouse’s or family’s financial future. In such situations, life insurance can be used to help create an “instant estate.” A life insurance policy death benefit can be a source of funds to help provide a continuing source of income, pay off a mortgage,or save for a child’s education.
Additionally, many people give little thought to how they would handle financial responsibilities, such as mortgage payments, car payments, college tuition, and utility expenses, if their income suddenly stopped for an extended period of time due to an illness or disability. Disability income insurance can help fill the financial void that occurs when income stops, and proceeds can be used to keep up with ongoing expenses.
Furthermore, since you may be unable to afford to rebuild your home in the event of fire, for example, you may choose to transfer that risk to an insurer by purchasing a homeowners policy.
Taking a closer look at different types of risk that may occur can help you answer some important questions. What should I insure? What type of insurance do I need? How much coverage should I purchase? Remember, the fundamental rationale behind all forms of insurance is to determine what risks can be transferred on a cost-effective basis.
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