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When Should New Parents Get Life Insurance?

Find out when new parents should start thinking about life insurance coverage to protect their children, financially, in case the worst happens.

When you’re a new parent or expecting to be a new parent soon, life can get hectic.

You have to prepare for the baby to arrive, which may seem like a monumental task for new parents.

Once the baby arrives, you have to keep your bundle of joy happy and healthy.

Often, this results in a lack of sleep.

Unfortunately, one thing often gets forgotten in all of the hustle to prepare and care for the new baby.

That’s life insurance.

Life insurance can provide financial protection for your family in case you pass away.

After all, the cost of raising a child isn’t cheap.

Unless you’re already independently wealthy, you may want to look into getting a policy.

This is even more true once you have children.

Here’s what you need to know.

Evaluating If You Need New Parents Life Insurance

People generally look at a few factors when determining if they need life insurance.

These factors may vary from person to person, though.

If you ever feel like you need life insurance, it doesn’t matter what your situation is.

If you feel the need for it, having it probably isn’t a bad idea.

For those that aren’t sure, here are some things to consider.

Who relies on you?

For most people, no one relies on you when you’re single and not in a relationship.

When you are in a committed relationship, your significant other relies on you in part or you depend on them.

Once you have kids, your kids rely on you both.

You should strongly consider life insurance when you have dependents.

If your dependents would suffer financially from your passing away, you likely need life insurance.

How much money do you have set aside?

Life insurance provides a death benefit to your beneficiaries, which are usually your family.

If you have enough money saved and invested today for them to live an ordinary life after you die, you may not need life insurance.

You’re essentially self-insured.

Most people don’t have this money set aside at the young age when they start having kids, though.

This means most people likely need life insurance.

What costs would increase if you die?

When evaluating your need for life insurance, you can’t just look at the costs you incur today.

Your family’s costs could very well increase when you die. They’ll have to pay for a funeral, for starters.

Another increased cost could include child care if your spouse works away from home.

Even stay-at-home parents likely need life insurance.

Increased costs result in a need for more money to cover those costs. This can be accomplished through a life insurance policy.

What income would disappear if you die?

Expenses aren’t the only factor to look at. Often, both parents work in a household.

Consider the lost income that would result if you died.

Then, you’ll have to figure out how much life insurance money you need to replace that income for as long as you wish.

Deciding When New Parents Should Get Life Insurance

Now you understand some of the factors that go into deciding if you need life insurance.

It should be evident most parents will need life insurance.

The question is, when should you get it?

As early as possible

One strategy suggests you buy life insurance as early as possible once you’ve started earning an income.

The earlier you buy life insurance, the cheaper it will generally be.

The downside:

You don’t know how long you’ll need insurance or when you’ll have kids.

If you purchase a 30-year term policy when you’re 20 but don’t have kids until you’re 35, the policy will expire when your first child turns 15.

This is during some of the most expensive years of raising a child through high school and college.

Before you decide to have kids

If you’ve decided to start trying to have a kid, you may want to buy life insurance before starting.

In theory, a 30-year policy should last until one or multiple kids graduate college.

The drawback comes if you have trouble conceiving or having multiple kids over a decade or more.

In these cases, a 30-year policy may not cover the time when your younger kids are going through high school or college.

Of course, you can always buy another policy to cover that period of time later.

The key is you must still qualify for insurance when you apply for another policy.

This is not guaranteed.

As soon as you have kids

If you don’t have life insurance before you have kids, you can try to get it as soon as you have kids.

This is easier for men than women.

Men’s bodies don’t change throughout pregnancy, so they can get a policy any time.

Pregnant women and women who have just had kids may have health issues that prevent them from getting the best possible life insurance prices.

That said, getting life insurance is essential. Locking in a policy even right after having kids could be wise.

You may be able to get quotes for a new policy after your body returns to normal to try to get a lower rate.

Other Factors to Consider

Life insurance purchasing decisions depend on many factors. You may have some unique factors to consider.

Special needs children

If you have a child with special needs, your life insurance needs may change.

Depending on the child’s needs, you may have to support them for their entire life.

This may change how much life insurance you decide to purchase as well as the type of policy you buy.

Long-term goals

Your long-term goals and financial planning also play a role in purchasing life insurance.

Consider any goals you have that may need funding should you die early when considering when and how much life insurance to buy.

Types of Life Insurance

As a new parent, you have many life insurance options. Here’s a quick summary of how the two major types work.

Whole Life vs. Term Life Insurance

Whole Life Term Life
Time frame Permanent Temporary, generally 5 to 30 years
Premium level Fixed for life of the policy Fixed for the term
Cash value Yes No
Interest-bearing Yes No
Loan provision Yes No
Cost High Roughly 10% of the cost of an equivalent amount of whole life insurance
Cannot be canceled except for nonpayment Yes Yes

Term life insurance

Term life insurance is the most common and useful form of life insurance in many cases.

It’s also the most affordable.

The policy stays in effect for a term, or length of time, that you choose when purchasing a policy.

Standard terms include 5, 10, 20 and 30 years.

If you die during the term while the policy is active, your beneficiaries get a death benefit payment.

That payment amount is something you decide when you take out the policy.

When you apply, you fill out an application with basic information about you and your health.

You’ll likely have to take a medical exam, too.

If the insurance company is happy with the results, they’ll offer you a policy and a rate for that policy.

After the policy is in effect, you pay the premiums for the amount of coverage you chose until the policy expires.

If you don’t die during the term, you get nothing. The good news is, you didn’t die.

Ideally, you’d save or invest money while the policy is in effect.

Then, you’d have enough money to self insure when the policy eventually expires.

If you still need coverage when the policy expires, you’ll have to apply for new coverage.

If you still qualify, you may get a policy. It will be more expensive as you will be older and may be in worse health, though.

Permanent life insurance 

Permanent life insurance is another form of life insurance but works differently than term life insurance.

The application process and medical exam are very similar.

Permanent life insurance doesn’t have a term, though. It lasts your entire life.

Because insurers know they’ll have to pay out a death benefit as long as you keep the policy active, it’s much more expensive.

Permanent life insurance usually has a cash value benefit.

Part of your premium payments go to build cash value in the account.

You can access this money to use for whatever you want. You may borrow against it in some cases, too.

If the cash value goes negative, your policy lapses and you lose coverage, though.

Unfortunately:

The high cost of permanent life insurance usually means it isn’t the best idea.

Most people are better off with term life insurance and investing the difference in premiums.

This assumes the person can commit to doing so without touching the money.

Consult an Expert

A life insurance calculator may help you start understanding what life insurance you need, but it isn’t a perfect solution.

When purchasing a life insurance policy to protect your family, make sure to consult an expert.

You want to make sure the surviving parent has the financial protection they need.

Life insurance salespeople are experts in how these policies work.

However, they have an incentive to push you to more expensive policies because the life insurance company pays a higher commission for them.

This creates a conflict of interest between your best interests and theirs.

To avoid this, you can pay to consult a fee-only fiduciary financial planner.

These planners get paid by you and do not receive a commission. This way, you can guarantee you’re getting objective advice about life insurance coverage.

The peace of mind may be worth the cost to some.

Others who have researched on their own may know precisely what they want and feel comfortable consulting a life insurance salesperson.

The choice is up to you.

Just make sure to consult an expert to understand your options and verify you’ve considered everything necessary before purchasing a policy.

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