Table of Contents
Key Takeaways
- Life insurance for new parents provides financial protection for their family in case something happens to them.
- It can replace lost income and help cover daily living expenses, including rent, mortgage, childcare, and utilities.
- Stay-at-home parents can also benefit from life insurance to support their surviving spouse or guardian in managing household responsibilities.
- There are different types of life insurance, including term life insurance for temporary coverage and permanent options like whole life and universal life insurance.
- The amount of life insurance needed will vary based on individual circumstances, including future expenses like college tuition, and can be customized to meet specific family needs.
Becoming a parent completely changes you: your priorities, your perspective — your sleeping patterns. You might also have a new focus on the future and giving your children everything they need to live healthy and happy lives.
As a new parent, it's hard to think about what would happen if you were to die, but it's important to be prepared. Here are some considerations concerning life insurance for new parents.
What Is Life Insurance for New Parents?
Life insurance for new parents can help give you greater peace of mind about your overall financial security. A life insurance policy can provide financial protection for your surviving spouse and child in case something were to happen to you. As a new parent, you have enough to worry about, so why not do what you can to reduce your stress and consider a life insurance policy?
How Does Life Insurance for New Parents Work?
A life insurance policy provides a cash payout, known as the death benefit, to your beneficiary when you die. There are several different types of life insurance.
The payment of the death benefit will vary based on the policy purchased. Though you can apply for life insurance at any time, there's an application and approval process during which you will answer questions about your medical history. You may also have to provide your medical records, and you may undergo a medical exam. Your age, health and lifestyle habits (for example, smoking) can all factor into whether you're approved for a policy, the policy's death benefit and how much you pay in monthly premiums.
Why Should New Parents Consider Life Insurance?
Life insurance can help provide new parents greater peace of mind and security by knowing you have financial protection for your expanded family. Here are some life scenarios to consider.
Replacing Lost Income
As a new parent, you might be reading about life insurance now because you want to replace lost income if you die unexpectedly or prematurely. Whether it's rent, a mortgage, child care costs, food or utilities, life insurance could help your family pay daily living expenses if you're no longer around.
Stay-at-home Parents
Parents who work primarily inside the home might consider life insurance as well. Stay-at-home parents tend to do a lot of unpaid, but invaluable, work every day — from cooking and cleaning to transporting children to school, doctor's appointments and sports.
If a stay-at-home parent dies unexpectedly, a life insurance policy could help a surviving spouse or other guardian to stay at home for some time or to hire help to cover some of the responsibilities of the deceased parent.
Types of Life Insurance for New Parents
First, it’s important to understand that life insurance can be either temporary or permanent. Which kind you select will depend on a number of factors, including how long you think you will need coverage and your budget. Term life insurance provides you with temporary coverage for a limited period of time — usually in durations of 10, 15, 20 or 30 years.
Whole life and universal life insurance, on the other hand, offer you permanent coverage for your entire lifetime. Let’s explore each of these in more detail.
How Does Temporary Life Insurance Work?
Term life insurance provides temporary coverage for a designated period, usually for 10, 15, 20 or 30 years. If you die during the policy term, your beneficiary will receive the death benefit. However, if you die after the policy has expired, your beneficiary will not receive a cash payout. Because term life insurance only lasts for a limited time period, it is often more affordable than permanent life insurance.
How Does Permanent Life Insurance Work?
Permanent life insurance, in contrast to temporary life insurance, never expires as long as premiums are paid. This is one of the reasons permanent life insurance can be more expensive than term life insurance. However, permanent life insurance offers you financial protection for your entire lifetime. Universal life and whole life are different kinds of permanent life insurance.
How Do Universal Life & Whole Life Insurance Work?
Universal life insurance is one type of permanent life insurance that you may want to consider. With a universal life insurance policy, you may have the flexibility to adjust your coverage to suit your needs as life changes. Just keep in mind that there must be enough cash value in the policy to cover monthly charges if a lower premium is paid than the amount selected at issue or if a premium payment is skipped. Additional premium payments may need to be made to keep the policy in force.
Whole life insurance is a type of permanent insurance that includes a cash value component. You can borrow against your policy's cash value, use it to pay your premiums or withdraw some of it to cover expenses while you're still alive. The cash value benefit can increase every year as you contribute premiums to the policy, and some insurance companies also pay interest on your cash value balance. Cash value loans accrue interest, however, and loans and withdrawals may generate income tax liabilities. In addition to reducing the cash value, loans and withdrawals can also reduce the value of the death benefit and may cause the policy to lapse.
How Much Life Insurance Should New Parents Buy?
Every person's life insurance needs will differ. You'll likely want to think through your family's future expenses. For instance, as a new parent, you may want to consider the cost of college tuition. A life insurance policy can help your child pay for college if you are no longer here and unable to help them.
Also, consider who you might name as the policy's beneficiary. For many new parents, this might be your spouse. However, you could choose to name a grandparent, sibling or another trusted relative as the beneficiary. They could then help manage the money to serve your young child's financial needs if you were to pass away.
Setting up a trust for your children could be another option. You can name the trust as the beneficiary and designate a trustee, who will act as the legal owner of the assets in the trust. Consider meeting with an estate planning attorney if you're interested in creating a trust.
Life insurance for new parents is one way to help support your family if you were to die. Though it's difficult to think about, you likely want to do everything possible to make sure your family is taken care of. A life insurance policy for parents is one way to help give your family that financial security.
