Life Insurance For New Parents: Types, Tips & More
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Summary:
Though it may not be fun to think about, getting life insurance as new parents is the best way to ensure your child and surviving spouse are protected. Insurance pays out a death benefit, which will ensure your family is financially supported after you pass away and can also provide for your family’s future expenses. As new parents, first look into term life insurance policies, which may be the most affordable policy option.
New parents, or people trying for children, have a lot to think about — from baby-proofing the house to childcare to starting a college fund. With everything else to worry about, life insurance coverage might not be at the top of the list, but it should be. It’s one of the best ways to protect your family and give them one less thing to worry about during a time of immense turmoil.
Today we’ll look at life insurance for new parents and why it’s important. Read on to learn more about the type of insurance coverage you need, how much it might cost you, and what you need to know before you buy. First, let’s take a quick look at the two main types of life insurance coverage.
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Types of life insurance policies
There are two basic types of life insurance policies. These are term life insurance and permanent whole life insurance products, also known as whole life insurance or universal life insurance.
In general, term life insurance will be the more practical and affordable solution for new parents, but it’s good to know about permanent insurance as well. In some cases, a permanent life insurance policy may actually be the smarter choice.
Permanent life insurance
Permanent life insurance is exactly what it sounds like. It’s life insurance that provides coverage until the time of your death.
Along with the policy’s death benefit, permanent life insurance has a cash value and is often used as a savings or investment tool in addition to its more obvious death benefits.
Term life insurance
Term life insurance, on the other hand, is only for a specified length of time — usually 10, 20, or 30 years — which means it has an expiration date. This kind of policy makes sense when parents are trying to save money and/or don’t plan to need the coverage later on. For example, if you have a 30-year term life insurance policy, your policy will presumably expire well after your children are grown and financially independent.
Because the policy is not a permanent policy, it’s less expensive than whole life insurance, making it more affordable for young parents who might just be starting out. Unlike a permanent life insurance policy, term life insurance has no cash value, which also contributes to the smaller expense.
Related reading: For a closer look at the differences between permanent and term life insurance, check out our article comparing the two.
What’s the best life insurance policy to start with?
As mentioned, term life insurance for new parents is usually the most sensible life insurance policy. It’s less expensive and can provide a lot of coverage without a lot of out-of-pocket costs.
“A term life insurance policy is the best option for a new family on a tight budget. It offers a large amount of protection for a very reasonable price. Age and health will also have an impact on how much you pay for a policy. But, generally speaking, term life insurance is a low-cost product that gives you the benefit of family protection,” says Kadesh Taffe, an insurance advisor at Private Partners Insurance.
Pro Tip
Another nice feature of term insurance is that, if needed, it can usually be converted into a whole-life policy down the road, which offers lifetime protection. This might make sense if you have a child that will be permanently dependent on you. Just make sure you’re aware of when the conversion period of your policy expires — typically five to 10 years from purchasing the policy.
Why new parents need life insurance
Any kind of insurance is essentially a safety net if something goes wrong. Most people wouldn’t even consider going without car or homeowners insurance, yet only about half of Americans carry life insurance.
If you’re single and no one depends on you, you’re probably fine without life insurance. However, having or adopting a child is the kind of life-changing event that should cause you to reevaluate your financial stability.
And, if you’re a young parent just starting out, adding another expense on top of your other financial obligations might feel like a stretch, or even unnecessary. But purchasing life insurance when you have a child who relies on you for their every need should be considered a need, not a luxury. A death in the family is a devastating blow that’s only made worse by a lack of financial support.
“Not only can it provide funds for your family going forward, but it also helps to alleviate the burden of debt that was left behind by the deceased. Oftentimes we hear of families having to sell their vehicles and homes even, due to a lack of income,” says Taffe.
“Life insurance is the single tool that can provide a large enough amount of money to help right away and into the future. Family protection should be one of the first things new parents seek, to ensure that in the event of a death, both the child’s and widowed partner’s futures are secured.”
Pro Tip
While there isn’t necessarily a “best” life insurance company, you can get one that’s best for your personal circumstances. To begin, you might want to first speak with a financial advisor or independent insurance agent to discuss the best options for you and your family’s future. “Agents can oftentimes help improve your offer if they have long-term relationships with the carriers,” says Mike Raines, owner/agent at Raines Insurance Group.
When is the best time to buy life insurance?
Ideally, you should purchase life insurance before you even get pregnant. This is because sometimes unforeseen health issues can crop up during the pregnancy and that will affect the cost of the premiums a life insurance company will charge you. You may even be denied coverage until after the baby is born.
“If you’re thinking about getting pregnant, be aware that it is sometimes difficult for women to get life insurance while they are pregnant. If children are what you want in the near future and you do not have life insurance, you should consider getting life insurance prior to your pregnancy,” advises Shawn Meaike, founder and president at Family First Life.
Still, don’t worry if you’ve waited until after you’re pregnant or even after the baby is born. You can still obtain life insurance for yourself and your partner.
IMPORTANT! Keep in mind that age and health are two critical factors that most life insurance companies use to calculate life insurance prices — and there’s often a medical exam. Thus, the younger and healthier you are, the lower your premiums will be.
Why do both parents need life insurance?
It’s important for both partners to have at least term life insurance policies, even if one of them doesn’t work outside the home. Though both parents contribute more than money to the care of a child, sometimes financial support for the surviving parent is the only way to replace the loss of a parent, at least in the short term.
“One misconception that many parents tend [to] have is that a stay-at-home parent does not need life insurance. This simply is not true. Just imagine if you became a single parent and had to take off work for an extended amount of time,” says Matt Schmidt, CEO at Diabetes Life Solutions, with 18 years as a life insurance agent.
“Then you may have to hire a nanny and even find day care for your children. Just because a stay-at-home parent isn’t ‘earning’ a paycheck, it does not mean that they do not need the proper amount of life insurance on their life.”
How much life insurance to buy
“Typically a rule of thumb is [the] breadwinner needs about 8-10 times their annual income in life insurance,” says Raines. “But, this figure is different for everyone since everyone’s financial situation is different. Term life insurance is the lowest cost plan of coverage and will provide the biggest bang for your buck.”
Having considered how much coverage you “should” have, you don’t necessarily need to start with a million-dollar policy. Some insurance coverage is better than none, and you can always upgrade it down the road as you make more money or experience other life changes, says financial advisor Greta Matiash with Pivotal Insurance.
“If you’re on a tight budget, term life insurance is still the best option,” Matiash says. “Look for a policy that provides enough coverage to take care of your family’s immediate needs, such as funeral expenses and outstanding debts. You can always increase your coverage as your financial situation improves.”
When might new parents want to change their policy?
As with any type of insurance policy, it’s a good idea to look it over on a regular basis to make sure that it still meets your needs. For new parents, that might mean adding to your term coverage or even converting to a whole life insurance policy. On the other hand, there are times when you might realize you don’t need as much coverage as you have.
“As your family grows and your financial needs change, you may need to adjust your insurance coverage. For example, if you have another child, you may need to increase your coverage to ensure that both children are adequately provided for. Or, if you pay off your mortgage, you may no longer need as much coverage as you did before,” Matiash explains.
Naming beneficiaries
While it’s important to have your spouse or partner listed as the beneficiary on your policy, you also want to think about who you want to have as your contingent (or secondary) beneficiary. In most cases, it makes sense to have the secondary beneficiary be the same person you would want to be the guardian of your child in case you and your partner pass away at the same time.
How life insurance is priced
There are a number of factors and personal circumstances that life insurance companies take into account when coming up with your monthly premium payments.
- Type of life insurance policy. As we mentioned earlier, whether you purchase term life or permanent insurance will affect your insurance price.
- Your age. Eligible policyholders who are younger will generally have lower monthly premiums.
- Your health. Like age, the state of your health is an important factor in determining the cost of your coverage. From an insurer’s perspective, the healthier you are, the less you’ll probably have to pay to maintain your health.
- Your sex. Since women typically live longer than men, women generally pay less for life insurance.
- Your smoking habits. Most life insurance companies will ask if you smoke and charge higher premiums if you do.
- Your hobbies. Those who engage in high-risk activities will usually pay higher premiums as well since the insurance company may have to pay for more doctor visits.
In general, the younger and healthier you are, the lowest premium payments you can qualify for. The average monthly premium for term insurance is around $30, but that can vary a lot depending on the length of the term as well as the other factors discussed.
FAQs
Can newborns get life insurance?
Yes, you can get life insurance for a baby. It’s actually not a bad idea, says Schmidt, because as awful as it is to think about your child dying before their time, it doesn’t hurt to plan for the unexpected. To be bankrupted by funeral costs while experiencing the loss of a child is something no one should have to go through.
“Working exclusively in the diabetes community for over the last decade, I’ve met and spoken with parents (whose) children were diagnosed with type 1 diabetes at a really young age. Life insurance is extremely tough to obtain [for] children with diabetes and, in some cases, there are no options.
“When there are options the rates are considerably more expensive. The younger and healthier a child is, the more options and the lower the life insurance premiums will be,” says Schmidt.
Which insurance policy is best for a newborn baby?
Some people may also want to purchase a life insurance policy for their baby to help secure the child’s education or otherwise look out for the child’s future.
“Here is the main reason I prefer to insure a child. You are purchasing their future insurability. In other words, if you buy some protection for them now when they are young and healthy you have also guaranteed that they will have a policy that they can use for themselves if for some reason they become uninsurable later on in life due to an illness,” says Raines.
In that case, the best life insurance is probably permanent coverage, so that they would have whole life permanent coverage going into adulthood. Or they might be able to use the cash value to pay for college tuition or other financial obligations, for example.
IMPORTANT! You might also look into adding life insurance riders to your and your partner’s existing life insurance policies. It may be a less expensive option to cover the baby rather than having their own individual policy.
Can you get life insurance for your parents?
You can get life insurance for your parents, but you can’t do it without their knowledge or consent. And you typically need to have a good reason, such as being the person who is solely responsible for your aging parents’ final expenses and who needs the life insurance payout to cover those costs.
Eligible expenses might include burial costs, end-of-life medical care, debts you cosigned with your parents, or money needed to care for the parent who is left behind, for example. In most cases, however, it might be easier for parents to just purchase a life policy for themselves instead and make you the beneficiary of the death benefits.
Key Takeaways
- Life insurance for new parents is important so the child and widowed parent have enough financial strength to cover burial expenses, outstanding debts, college tuition, and anything else to provide security for the child’s future.
- Not only the major breadwinner of the family should be insured — both parents need to carry life insurance policies.
- Term insurance, as opposed to permanent life insurance, is usually the best option for new parents because of its flexibility and affordability.
- Be sure to have primary and secondary beneficiaries on your life insurance policies in the event that both parents pass away at the same time.
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