Life Insurance for New Parents: What You Need to Know

• Life insurance is essential for new parents who want to protect their family’s financial future and their child’s needs, such as childcare, education, and living expenses.
• Term life insurance offers high coverage at a lower cost, while permanent life insurance offers lifelong protection and builds cash value over time.
• The ideal coverage amount usually starts at about 10 times your annual income(1), which typically should be enough to account for debts, mortgage, childcare, and future education costs.
• Common mistakes to avoid include underestimating coverage needs, delaying your purchase, or forgetting to update beneficiaries after major life events.

Being a new parent comes with added responsibilities, not just for yourself but for your newborn. Buying life insurance provides a financial safety net that can cover essential expenses and safeguard your child’s future.

Here are a few reasons why you should purchase life insurance as a new parent:

• Income replacement: If one parent passes away, life insurance helps replace lost income, helping ensure your family can maintain their standard of living.
• Childcare and daily expenses: Funds from a life insurance policy can help pay for childcare, housing, and even pay everyday bills.
• Debt protection: It prevents your family from inheriting outstanding debts such as a mortgage, car loan, or credit card balances.
• Education and future planning: Life insurance can help secure your child’s education fund and long-term needs.
• Peace of mind: Knowing your loved ones will be financially stable allows you to focus on raising your child without added worry.

There are two main types of life insurance options for new parents: term life insurance and permanent life insurance. You may opt for either of these insurance policies based on your specific needs.

Term Life Insurance

Term life insurance is the most common and affordable option for new parents. It provides coverage for a set period, typically between 10 and 30 years. If you pass away during the term, your loved ones receive a death benefit that is typically tax-free. The payout can help cover childcare, mortgage payments, or education costs. It can be ideal for parents who want budget-friendly coverage while raising young children.

Permanent Life Insurance

Permanent life insurance lasts your entire lifetime as long as premiums are paid. It also includes a cash value component that grows over time and can be borrowed against or used later for major expenses. It’s generally more expensive than term, but the lifetime coverage appeals to many parents. The two most common types of permanent life insurance are whole life insurance and universal life insurance.

Read: Difference between Life Insurance and Annuity

Life insurance is not a one-size-fits-all product. The right amount of life insurance for new parents depends on your family’s financial needs, income, and long-term goals.

A good rule of thumb is to have enough coverage to replace at least 10 years of your income(1), but every family’s situation is different.

In general, your life insurance death benefit payout should be able to cover expenses related to a newborn, such as childcare, future education costs, or paying off a mortgage in the event of your death.

Buying life insurance as a new parent may feel overwhelming. Your policy should have enough coverage to financially support your child’s future until they become adults.

Here are a few simple steps to purchase life insurance as a new parent:

1. Assess your family’s financial needs: Calculate how much coverage you’ll need to replace your income, pay off debts, and cover childcare, daily expenses, and future education costs.
2. Choose the right type of policy: Most new parents start with term life insurance for affordable protection during their children’s dependent years. If you want lifelong coverage and a cash value component, consider permanent life insurance.
3. Apply and complete the medical exam: The application process will ask for details about your health and lifestyle. Some policies may require applicants to undergo a short medical exam; others offer no-exam life insurance options for convenience.
4. Name your beneficiaries: Typically, this includes your spouse, co-parent, or a legal guardian for your children. You can also set up a trust to manage the payout.
5. Review and finalize your policy: Read the terms of your policy carefully to confirm the coverage amount, premium, and duration, then finalize your policy.

Read: Can You Get Life Insurance If You Have Cancer

Should You Get Life Insurance for Your Newborn Child?

New parents often choose whole life insurance for their children. These policies provide lifelong coverage and can guarantee future insurability, even if your child develops health issues later.

They also generate a cash value component that can be used by your child to fund major life events such as education, weddings, and other milestones.

Buying life insurance as a new parent may come with its own set of pros and cons. While it provides a peace of mind and financial security for your young infant, it may also feel like too much to budget for.

Here are a few pros and cons that you may want to consider:

Many new parents make a few common mistakes when purchasing life insurance. Avoiding these mistakes can help you get the right coverage without straining your wallet.

• Underestimating coverage needs: Many parents choose too little coverage, leaving their family under-protected.
• Delaying the purchase: Waiting too long can lead to higher premiums or limited eligibility due to changing health. Premiums also increase with age.
• Insuring only one parent: Both working and stay-at-home parents contribute financially and each should have coverage for added protection.
• Choosing the wrong policy type: Not understanding the difference between term and permanent life insurance can lead to unnecessary costs.
• Skipping medical disclosure: Omitting health details can lead to denied claims or policy cancellation later.
• Not updating beneficiaries: Forgetting to add or update beneficiaries after a child’s birth can cause payout complications.