New Parents and Life Insurance: What to Consider

Guest Post by Liana Corwin

As a new or soon-to-be parent, there are so many things to consider for the first time, or reconsider in a new light. Starting a family is an amazing adventure but it also requires us to consider how to secure our loved ones’ futures should anything happen to us. 

While the to-do lists may be long — and will probably be ever-growing — life insurance is one item worth an extra look.

Why new parents need life insurance

New parents need life insurance for the same reason anyone with dependents does: to make sure your loved ones are cared for in case you’re no longer around. You are now in charge of a new person who won’t be financially independent for a long time. 

While you may have some form of life insurance through your work, it may not be enough — and, like any other employee benefits, it is typically tied to your job — you leave, it may not move with you.

Another important consideration is that, regardless of your age, the best time to buy life insurance is always right now. That’s because any kind of life insurance comes with higher premiums the older you are. As such, it makes sense to get a policy as soon as possible to lock in the best price.

Which kind of life insurance is right for new parents 

Broadly speaking, life insurance policies come in two variants: “term life” and “whole life.” With the former, you choose a given time period (the “term”) during which you will pay monthly premiums and receive coverage for a given amount that, should you die within this period, will go to your beneficiaries. 

Conversely, “whole life” is an open-ended contract with no expiration date: if you keep paying in, it will cash out whenever you die. Some whole life insurance policies also include a cash value component, whereby a portion of the premiums are invested and accrue interest, raising the overall value (and cost) of the policy. 

“Term life” is likely the right kind of life insurance for new parents for several reasons:

• One, it is generally cheaper than whole life (3–10x less expensive), possibly an important factor given the impact of having children on a family’s budget. 
• Two, it’s relatively easy to figure out the appropriate term length — typically 10 to 30 years — if your goal is ensuring your children receive support until they’re financially independent. 
• Three, while “whole life” may offer an investment component of some kind, a financial strategy called “buy-term-and-invest-the-difference” may have higher returns and you control the investment. In this case, a customer buys term life insurance, then saves or invests the difference between the payment for that term life product and what it would have cost for a permanent life insurance product that provides the same coverage amount. 

Typical term life insurance can be rather limited, however. With most term policies, you select a policy and you're pretty much locked into it for the duration of your term—that means you have to project at the time you're taking out your policy what your family and financial picture will look like over the next 10, 20, 30 years. 

Typical term life insurance can be rather limited, however. With most term policies, you select a policy and you're pretty much locked into it for the duration of your term—that means you have to project at the time you're taking out your policy what your family and financial picture will look like over the next 10, 20, 30 years. 

That’s where laddering, or flexible term life insurance, comes in. Your life is dynamic, and you should have the option to change your policy as your needs change. 

Ladder gives you the option to decrease your coverage over the course of your term life policy, which decreases your premiums by the same proportion.

For example, when your kids are grown up and no longer financially dependent on you, or when you pay off your mortgage early, you can decrease your coverage (and payments) with a few clicks online or taps in the app. Or maybe you apply to bump up coverage because you have a new baby or move to a city with a higher cost of living.

As you increase or decrease your coverage throughout your term, your monthly premium payment will increase or decrease accordingly. Staying on top of your life insurance needs is a smart way to save money over the years while keeping your loved ones covered.

Why both parents should get life insurance 

It’s important to note that we’ve been discussing which life insurance is right for new parents, plural. Whether you and your partner are both working or one of you is a stay-at-home mom or dad, you should consider both getting life insurance. 

That’s because the support provided by a parent isn’t only counted in dollars earned: if one parent isn’t around anymore, there is suddenly a deficit in terms of how much time they used to put into childcare, managing the home, cooking, transport, and so on. All of this non-salaried work will have to be provided by some other means, and a second life insurance policy will go a long way towards maintaining your family’s standard of living.

What to consider if you’re a single parent

If you are a single parent, one point to note is that most life insurance policies won’t pay out to minors, so it is worth consulting with an attorney to determine how best to make this work if you want the money going to your child(ren) or for their care. It is generally easy to do, you just want to make sure it's done correctly.

Next step: figure out your life insurance needs

If it all feels a little overwhelming, don’t fret! A free online calculator will help you figure out your needs in just a few minutes.

Another item checked off the list!

Liana Corwin is the Director of Communications and Editor of the Financial Literacy Blog at Ladder, an award-winning insurtech that’s using technology to make life insurance smart, easy, and affordable. Passionate about helping consumers, Liana has spent nearly a decade working with brands that solve hard problems and make consumer experiences delightful.