Sleepless nights, feeding your child every few hours, and your life totally transformed overnight. Welcome to parenthood. Oh, there’s also the little bundle of joy that will keep you smiling every day, too. We probably should have started with that.
Becoming a new parent is both exciting and overwhelming at the same time, especially as you’ve got a little one depending on you from now on. Life takes on a new meaning, and you might just be thinking about life insurance for new parents to protect your child financially should the worst happen to you.
In this guide, we’ve got you covered with everything you need to know about getting a life insurance policy as a new parent. So read on and take the stress away with our uncomplicated checklist.
Life insurance for new parents
Life insurance is something you should think about getting, no matter your age or family situation. But there’s no doubt that it takes on increased importance when you have dependents who rely on you to provide for them.
The last thing you want to think about after having a child is the idea that you might not be around for them further down the line. But if the worst did happen and you were to pass away, the financial responsibility would fall on your spouse.
With a life insurance policy, however, you can protect your family with the death benefit it provides. As a result, you can see to it that they get proper financial protection, and their way of life (at least financially) doesn’t need to change.
Term or perm?
There are two primary options for picking a life insurance policy: term and permanent coverage. They both offer a death benefit, but that’s pretty much where the similarities stop.
Term
The names are a big giveaway: term life insurance lasts for a set amount of time, usually anywhere between 5 and 30 years. For many parents, a term policy makes sense, as they may only want to protect themselves until their children reach the age of independence.
However, term life insurance is somewhat streamlined in its offering. You’re only covered for a specific period of time, and should you wish to renew, the new premiums on the policy are charged at the renewal age. For example, if your coverage expires when you’re 55, and you want to renew, your new cost will be based on the age and health of a 55-year-old.
There is also only a death benefit associated with a term policy. You don’t get any other benefits that could help both yourself and your child while you’re still alive. On the plus side, a term policy is usually the cheapest type of life insurance available.
Permanent
Unlike term, a permanent policy never expires. You also can also get benefits while you’re still alive, such as wealth building with a cash-value aspect. Let’s break all of those down in more detail, as it’s a lot to take in.
One premium throughout your coverage
Permanent life insurance is more expensive than a term policy, but it also has more value. That’s because your premium never expires, and you pay the same amount at 35 years of age as you do at 55. You’re locked in from the minute you sign up, which gives you more clarity over the monthly payments and what you need to pay.
Cash-value aspect
With a perm policy, you can build wealth through cash accumulation and access it while you’re still alive. When you pay into your premium, you essentially cover two pots: cash value and death benefit. Both of these grow over time, and you can draw down the cash you’ve accumulated later in life while you’re still alive.
Tax-advantaged benefits
When you take out your cash value, you have the option to do so by borrowing a 0% loan against yourself. Because you can’t pay tax to yourself, it means there’s nothing to give the IRS. Then, when you pass away, your death benefit (which has also grown) repays the loan, with the rest going to your beneficiaries.
Should both parents get life insurance?
The short answer is “yes.” Yes, they should. If one parent gets life insurance, but it’s the other one who dies, you essentially find yourself in the same situation as having no life insurance, as the person who passed wasn’t covered.
Even if your other half is a stay-at-home parent, they should still consider getting a life insurance policy. Stay-at-home parents provide essential services, such as child care, which would need to be replaced if they weren’t around.
Therefore, it’s important for both parents to get a policy and make sure that all angles are covered. There is also the option of a joint policy, though these aren’t typically as popular as individual coverage because they don’t offer the same protection as individual options.
Deciding on a beneficiary
A life insurance policy requires you to pick a beneficiary– the person who receives your death benefit if you pass away. While you might want to name your child as the beneficiary, you’re better off choosing your spouse instead.
Some state laws don’t allow minors to be named as the beneficiary on life insurance policies. And even when you legally name a minor, they will struggle to access the money until they turn 18.
Therefore, it’s better to pick your spouse or a guardian you trust if you’re a single parent. They will ensure that your children are well looked after and can maintain a high quality of life if you’re not around.
Helping your children with life insurance while you’re still alive
We’ve already mentioned permanent life insurance and the benefits it offers while you’re still alive. But it’s really worth doubling down on how beneficial it can be for you and your new family.
Let’s say you started a policy when your child was born and paid into the premium for 18 years. You could essentially use your cash value to send your child to college, which would mean you don’t need to find the funds elsewhere.
Alternatively, you can use that wealth accumulation to give your child a head start when they reach adult age, helping them out where necessary with the nice little nest egg you’ve built up over the years. With a permanent policy, you can do so much more than protect your family if you die.
In conclusion: life insurance for new parents
Life insurance is something all new parents should think about getting. It can give you added peace of mind and protect your partner and children in the event of your death. And with a permanent policy you can also benefit while you’re still alive, covering all financial angles for your and your family.