Becoming a new parent is a huge milestone, not to mention a daunting and unique privilege. As you begin this new chapter in your life, it’s natural to feel a strong desire to protect your family. One way of doing this is with life insurance, as it can provide financial protection for the growing family should one or both parents pass.
Learn more about how life insurance works for new parents and explore your options.
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Why Life Insurance Is Important for New Parents
If a parent passes away unexpectedly, life insurance replaces their lost income, helping to ease the financial burden for their children and surviving spouse. It provides funds to cover daily living costs, child care, education, and other expenses. This helps surviving family members maintain their lifestyle with minimal interruption during an already difficult time. A life insurance policy can also help ensure the child’s appointed guardian has the financial support needed to continue providing the same level of care.
In addition, life insurance payouts can settle outstanding debts, such as mortgages and car payments, and cover burial costs. A life insurance death benefit can give the surviving spouse or partner flexibility, allowing them to take time off work or make important decisions without the immediate pressure of financial obligations.
Do Both Parents Need Life Insurance?
In addition to replacing lost income, life insurance can also cover the cost of services like child care and home management. Since these services can result in significant expenses upon one parent’s death, it’s generally recommended that each parent have a life insurance policy, regardless of whether they are the primary wage earner.
When Should New Parents Purchase Life Insurance?
It’s never too early to purchase life insurance, and you can buy a policy even before your child is born or adopted. Purchasing your life insurance policy earlier can also give you a financial advantage because life insurance tends to become more expensive as you age.
For parents specifically, it’s best to purchase life insurance when:
- You’re newly pregnant or planning to get pregnant
- You’re adopting a child or having one through other means
- You’re planning to have or adopt children in the next 5 to 10 years
Newly Pregnant or Planning to Become Pregnant
It’s possible to get life insurance while pregnant, but there are some caveats that you may want to keep in mind:
- Medical complications can result in higher premium rates.
- You can save money if you purchase life insurance before pregnancy because that helps premiums remain as low as possible.
- If you’ve recently given birth, insurers may opt to put the application on hold until a few months after birth.
Considering these potential issues, it’s best to get life insurance before you get pregnant. Not only can it support your child if you pass away later in life, but if there are complications during birth that result in your death, your beneficiaries will receive a death benefit.
Adopting a Child or Having a Child Through Other Means
Parents who are adopting or planning to do so — or are having a child through a surrogate or gestational carrier process — could benefit from purchasing life insurance beforehand. The insurance process can take time, so getting the process started earlier can ensure the child is financially protected from the moment they join the family. In addition, some states require adoptive parents to have an active life insurance policy.
If You’re Planning for Children in the Next 5 to 10 Years
If you’re planning to bring a child into the family in general within the next 5 to 10 years, it’s a good idea to apply for life insurance as soon as possible. Health issues typically arise more frequently as people age, and these could increase your premium. Including life insurance into your family planning process early on could help you receive a more favorable premium for your coverage.
Types of Life Insurance to Consider
New parents looking for life insurance coverage typically must choose between term and permanent policies. Term life provides straightforward protection for a set period, while permanent life offers lifelong coverage with additional investment benefits. Understanding how each works can help you determine the right option for your needs.
Term Life Insurance
Term life insurance is ideal for new parents seeking a simple, budget-friendly solution. It covers a specific time frame, typically 10 to 30 years, allowing you to align your policy term with key financial responsibilities like raising children or paying off a mortgage.
Term policies pay out a death benefit if the covered individual dies while the policy is in force. After the term is up, you can either renew the coverage at a higher rate, convert it to a permanent policy if eligible, or allow the policy to expire. This flexibility makes term life insurance a practical choice for new parents, providing coverage for a set term during the years when financial obligations are highest, such as during the early years of parenting.
Permanent Life Insurance
Permanent life insurance provides lifelong coverage, making it a reliable choice for new parents seeking long-term financial benefits. Unlike term life insurance, whole and universal life policies do not expire and remain active as long as premiums are paid. Like term policies, permanent life insurance policies pay a death benefit when the covered individual passes away. They also accumulate cash value over time, which the family can tap into during the policyholder’s lifetime.
New parents may choose a permanent policy if they want to ensure continuous protection regardless of future health changes. The cash value component can also be used for future needs, like a child’s education, or as part of a retirement strategy. While premiums for permanent life insurance are higher than for term life, the lifetime coverage and growth potential can make it a valuable tool for long-term financial planning.
Is Group Term Life Insurance Enough?
Group term life insurance is typically offered by employers and provides a basic level of coverage. But while it’s a convenient and low-cost way to obtain life insurance, the coverage is commonly limited to one to two times the employee’s annual salary.
New parents may find that this death benefit amount is not sufficient to meet their financial obligations and support their family over the long term, particularly when considering costs such as mortgage payments, child care, and education.
Group term life is also typically attached to your employment, so if you change jobs, you could lose your coverage. This lack of portability can be a significant concern for new parents. Purchasing a personal life insurance policy helps ensure you have continuous coverage regardless of your employment status.
What Life Insurance Is Best for New Parents?
When choosing a life insurance policy, it’s important to consider your personal circumstances and future financial goals. Term insurance is typically a suitable choice for new parents. It offers affordable premiums and provides coverage for a defined period, which can align with the years when parents face larger financial responsibilities, such as raising children or paying off a mortgage.
For those seeking long-term coverage or with unique considerations, like a child with a disability, permanent life insurance may be more appropriate. The lifetime coverage and ability to accumulate cash value create opportunities for longer-term financial planning.
How Much Life Insurance Do New Parents Need?
As a new parent, there are several factors to consider as you figure out how much life insurance you need to purchase, including:
- The amount of money it would take to pay off your debts, such as car loans or mortgages, if you were to suddenly pass away
- How much your dependents will need to maintain their lifestyles if you pass away during the policy period
- Financial needs that a life insurance policy could help pay for, such as your children’s college education
Insurers will use these factors to help you calculate your coverage needs. Common calculation methods include multiplying your income by 10 to simulate 10 years worth of your income as the death benefit. Another approach is the DIME method, which factors in your debt, projected income, mortgage balance, and education costs for your children.
Factors That Affect Life Insurance Premiums
The cost of life insurance can vary significantly depending on a wide range of factors, including:
- Age: Younger applicants generally pay lower premiums, as they’re considered less risky to insure.
- Health: Good health typically results in lower premiums. Medical exams and health histories are used to assess risk.
- Lifestyle: Risky hobbies or occupations can increase premiums due to higher perceived risk.
- Smoking status: Smokers typically face higher premiums compared to non-smokers due to associated health risks.
- Policy type and coverage amount: More comprehensive policies and higher coverage amounts lead to higher premiums.
- Gender: Statistically, women tend to pay less than men due to longer life expectancy.
- Family medical history: A history of hereditary health conditions can impact premium costs.
Why Parents May Want to Avoid Naming Their Children as Beneficiaries
Choosing the right beneficiary for your life insurance policy is critical, especially for parents. While it’s natural to want the death benefit to go to your children, naming minors as beneficiaries can be problematic.
If a beneficiary is under 18, the life insurance company cannot pay the benefit until a court-appointed guardian is in place. This requirement can create a lengthy, complex, and expensive process. Instead, consider naming the other parent as the primary beneficiary, and the individual who you have designated to be the child’s guardian in the event of both parents’ death as a contingent beneficiary.
You may also consider using a life insurance trust, which allows you to specify how the funds should be used and managed for the child’s benefit. Creating a trust can help ensure that your children are cared for according to your wishes.
Putting It All Together
For many new parents, life insurance offers a way to help secure their family’s financial future. Many new parents choose term insurance for its affordability and defined coverage period. However, you may consider permanent insurance if you prefer lifetime coverage and investment benefits.
As you consider your options, be sure to carefully calculate your coverage need, and keep in mind that premiums can vary based on a range of factors. Also, remember that naming a minor as the policy beneficiary could create complications, so consider naming a trusted adult or using a life insurance trust instead.