Pregnancy and premiums: avoiding the life insurance baby bump

Pregnancy and premiums: avoiding the life insurance baby bump

For many, the birth of a child is often a trigger to buy life insurance. But as anyone who’s gone through it can tell you (or at least has told me), the birth of a child is also a whirlwind of appointments, errands, and weird food binges, and as you rush to prepare for your new child, you end up wondering how things went from 6 weeks to 8 months in the blink of an eye.

Still, while you’re prioritizing the tasks on your to do list, move "buy life insurance" to the top of the list.

Why? Because buying it in your first trimester might end up saving you money for years to come.

What do insurance companies have against babies?!!

To understand what’s going on here, it helps to imagine how an insurer sees the world, which is basically like this:

How an underwriter sees things.

Insurance companies think in numbers and probabilities.

To price a policy correctly for an individual, they look at groups of people with similar characteristics and figure out things like the estimated lifespan and future health risks for the average member of that group. They can’t predict your future, but by making some educated guesses about people who are like you, they can arrive at an appropriate price for your policy.

This is how we end up with the baby bump in life insurance premiums. For women in your group who are having a baby, a good number of them end up weighing more after the pregnancy than they did before. Because the insurer can’t predict whether or not you specifically will be one of these women, it errs on the side of caution and treats your current weight—pregnancy or no pregnancy—as your standard weight at the time you apply.

Because weight is such a reliable indicator of future health, it factors heavily into how the insurance company estimates your mortality risk. This is why you can be rated in one risk class the first month of your pregnancy but end up in another one by your ninth month.

A matter of months

Here’s a simple real-world example of what happens:

Karen is the average height and weight for a woman in the U.S.—5’ 4" and 165 pounds. She just found that she’s pregnant. (Congratulations, Karen!) She wants to buy some life insurance now that she’s going to have a family to care for. Let’s consider two scenarios.

In the first, Karen buys life insurance shortly after finding out about her pregnancy. Her medical exam at that time shows that she weighs 168 pounds—just a few more than her pre-pregnancy weight. At that weight, she qualifies for the top rate from a life insurance company because of where she falls on their pricing tables.

• Find out what else happens during an insurance medical exam—and how to prepare for it.

In the second scenario, Karen waits until her third trimester to buy some life insurance. Her medical exam at that point shows she weighs 195 pounds. Now Karen no longer qualifies for the top rate at that weight, even though she’s in perfect health and at an appropriate weight for a pregnant women in her third trimester. Karen still qualifies for a good rate—either Standard Plus or Standard—but now she’ll have to pay a slightly higher premium than she would have 6 months ago.

When you’re starting a family, the last thing you probably want to think about is how to save money on your life insurance. On the other hand, you also don’t want to end up paying more than you need to, since that extra money could be better-spent on diapers and, eventually, babysitters. But the solution doesn’t have to be complicated—if you’re pregnant and planning on buying life insurance, simply buy it as early as possible.

Photo: Sharyn Morrow