Having a baby is a life-changing event that comes with new responsibilities and financial needs. Find out why life insurance is a smart move for new parents and how to choose the right coverage for your family.
If you recently welcomed a new addition to your family, you may be busy adjusting to your new role as a parent. You may not have much time to think about life insurance, but it's an important part of planning for your family's future. Life insurance can provide a financial safety net for your loved ones in case something happens to you or your partner.
The good news is that life insurance is not as complicated or expensive as you may think. There are different types of life insurance policies that can fit your budget and needs. In this article, we'll explain how life insurance works, why you need it as a new parent, and how to choose the best option for your family.
What is life insurance and how does it work?
Life insurance is a contract between you and an insurance company. You agree to pay a premium (a monthly or annual fee) and the insurance company agrees to pay a lump sum of money (called a death benefit) to your beneficiaries (the people you choose to receive the money) if you die while the policy is in force.1
The main purpose of life insurance is to replace your income and help your family cover their living expenses, such as mortgage payments, medical bills, childcare costs, education fees, funeral costs, and more. Life insurance can also help you leave a legacy for your children or support a cause you care about.
Why do new parents need life insurance?
As a new parent, you have a lot of responsibilities and expenses to take care of. You also have a lot of dreams and hopes for your child's future. But what if something happens to you or your partner? How would your family cope financially and emotionally?
Life insurance can help you answer these questions and give you peace of mind. It can ensure that your family can maintain their lifestyle and achieve their goals even if you're not around to support them. It can also protect your partner from the burden of debt and provide a cushion for unexpected expenses.
According to a 2024 study, 42 percent of American adults perceive a need for (or for more) personal life insurance. Women were less likely than men (46% vs 57% to report having life insurance.2
Many people think that life insurance is too expensive or too complicated to buy. But the reality is that life insurance is more affordable and accessible than ever. You can choose from a variety of options that suit your needs and budget.
What are the types of life insurance for new parents?
There are two main types of life insurance: term life insurance and permanent life insurance. Each one has its own benefits and drawbacks, depending on your situation and goals.
- Term life insurance provides coverage for a specific period of time, such as 10, 20, or 30 years. If you die during the term, your beneficiaries receive the death benefit. If you outlive the term, the policy expires and you get nothing back. Term life insurance is usually the simplest and cheapest type of life insurance, and it's ideal for new parents who need a lot of coverage for a limited time. For example, you may want to buy a term life policy that covers the years until your child graduates from college or until your mortgage is paid off.
- Permanent life insurance provides coverage for your entire life, as long as you pay the premiums. It also has a cash value component, that grows tax-deferred over time. You can borrow or withdraw money from the cash value for any purpose, such as paying for emergencies, retirement, or education. Permanent life insurance is more complex and expensive than term life insurance, but it offers more flexibility and benefits. It's ideal for new parents who want lifelong protection and the potential to build wealth for their family.
How to save money on life insurance for new parents?
The cost of life insurance depends on several factors, such as your age, health, lifestyle, coverage amount, and policy type. Generally, the younger and healthier you are, the lower your premiums will be. That's why it's a good idea to buy life insurance as soon as possible, especially as a new parent.
Here are some tips to help you save money on life insurance:
- Buy only the amount of coverage that you need, based on your income, debts, and future expenses.
- Opt for term life insurance if you only need coverage for a certain period of time.
- Quit smoking and avoid risky hobbies, such as skydiving or scuba diving, as they can increase your premiums.
- Maintain a healthy lifestyle, such as eating well, exercising regularly, and managing your stress.
- Review your policy periodically and adjust it as your life changes, such as when you have another child, buy a house, or retire.
How to take advantage of employer-provided life insurance?
Many employers offer group life insurance as part of their employee benefits package. This is a convenient and affordable way to get some basic coverage for your family.
However, group life insurance may not be enough to meet your family's needs. Typically, group life insurance only covers one or two times your annual salary, which may not be enough to cover your family's long-term expenses. Moreover, group life insurance is usually tied to your employment, which means you may lose it if you change or lose your job.
That's why it's advisable to supplement your group life insurance with an individual policy that you own and control. This way, you can ensure that your family is fully protected and that you have coverage that lasts beyond your employment.
Why both parents need life insurance?
Some people think that only the breadwinner of the family needs life insurance. But this is a misconception that can leave your family vulnerable. Both parents, whether they work or stay at home, contribute to the family's well-being and expenses. Therefore, both parents should have life insurance to protect their family's financial security.
For example, if you're a stay-at-home parent, you may not earn an income, but you provide valuable services to your family, such as childcare, housekeeping, cooking, and more. If you die, your partner would have to pay for these services or take time off work to do them. This can add a lot of stress and financial strain to your family.
Similarly, if you're a working parent, you may earn an income, but you also have other responsibilities and goals for your family, such as paying off debts, saving for retirement, or leaving an inheritance. If you die, your partner would have to cover these costs or compromise on their lifestyle and aspirations.
By having life insurance for both parents, you can ensure that your family can maintain their standard of living and achieve their dreams, no matter what happens to either of you.
How to choose the right beneficiaries for your life insurance?
One of the most important decisions you need to make when buying life insurance is choosing your beneficiaries. These are the people who will receive the death benefit from your policy when you die. You can choose anyone you want, such as your spouse, children, relatives, friends, or charities.
However, you need to be careful when naming your beneficiaries, especially if you have minor children. You may think that naming your child as a beneficiary is a good way to secure their future, but this can actually cause more problems than benefits. If you die and leave money to a minor child, they may not be able to access it until they reach the legal age, which can vary by state. In the meantime, the money may be tied up in a court-supervised process, which can be costly and time-consuming.
A better option is to name an adult that you trust, such as your spouse or a relative, as a beneficiary and instruct them to use the money for your child's benefit. Or, you can set up a trust for your child and name the trust as a beneficiary. A trust is a legal entity that can hold and manage the money for your child until they reach a certain age or condition that you specify. A trust can also provide tax advantages and protect the money from creditors and lawsuits.
Enjoy your parenthood with peace of mind
Being a parent is one of the most rewarding and challenging experiences in life. You want to give your child the best possible start and prepare them for a bright future. But you also want to be prepared for the unexpected and protect your family from any financial hardship.
Life insurance can help you achieve both goals. It can provide a financial cushion for your family if you die unexpectedly, and it can also help you build wealth and legacy for your child. Life insurance can give you the peace of mind that your family will be taken care of financially.
That's why it's a smart move to buy life insurance as a new parent. Generally speaking, the sooner you buy it, the cheaper and easier it will be. And the more you can enjoy your parenthood without worrying about the future.
