The best time to get life insurance is before you have children so you can protect your family from the beginning
Updated September 24, 2020|8 min read
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Congratulations! You’ve grown your family. Things just got real, and you’ve got a whole new person to take care of for the next 18 years — and beyond. (Yep, more than 20% of millennials still live with their parents) That means you’ve got to figure out a way to take care of that person even if you’re not around, which means you need life insurance.
Choosing a life insurance policy can be confusing, especially on top of new childcare responsibilities. Since the underwriting and application process can take 5-6 weeks, we recommend buying life insurance before you have children to ensure your policy is active when you need it.
New parents, or anyone planning to have kids in the future, should get life insurance sooner rather than later to get the best rates
In a two-parent household, both parents need their own life insurance policies, regardless of whether they are the primary earner
Even if you have group life insurance through your employer, it usually isn’t enough to protect your children if you die
There’s no time like the present to buy life insurance. Your rates rise on average 4.5-9% each year, plus new medical diagnoses can mean higher rates, too.
Below are some common situations in which you should get life insurance:
If you plan to give birth or adopt a child in the future (even in the somewhat distant future), we suggest applying ASAP to lock in lower premiums. You should view life insurance as a financial planning tool. You wouldn’t wait until you retire to start contributing to your 401(k) and you shouldn’t wait until you have a child to get life insurance.
You can still get life insurance if you are pregnant, but there are some caveats. Pregnancy comes with weight gain and sometimes medical complications (like gestational diabetes), which can cause your premium rates to increase. Generally, the best time to shop for life insurance is before you become pregnant or in the earlier months of pregnancy.
If you’ve given birth very recently, an insurance company may opt to put your application on hold until you’re a few months out from birth, but an advisor can look at your application and tell you when you’ll be able to apply.
If you’re about to become a parent, as mentioned above, we suggest applying now. In fact, the very best time for women planning on starting a family to apply is before they get pregnant to ensure that rates are not affected by pregnancy weight gain or complications (and to guarantee coverage during the birth).
If you’re adopting a child or using a surrogate, you should know that the life insurance application process can take 5-6 weeks. It makes sense to get it started before you meet your child, to ensure they’ll be protected financially from day one.
There are two main types of life insurance: whole life and term life.
Whole life insurance is permanent life insurance that lasts as long as you make your premium payments and has a cash-value component. It’s eight to 10 times more expensive than term life insurance.
You purchase term life insurance for a set number of years (the term), and when that term expires, so does your coverage (though many term products allow you to convert to a whole product at the end of your term).
Because it’s pure insurance and so much more affordable, term life insurance is the best product for most people, including new parents.
Some people don’t like the idea that it expires, but in truth, most of us don’t need life insurance our whole lives. At some point, your kids will be grown, your mortgage will be paid off, and your retirement will be funded — no one will depend on you financially, so there will be no reason to have life insurance.
When you’re choosing a term length, most advisors will recommend that you choose the length of your longest financial obligation. If you’ve just signed a 30-year mortgage, that means a 30-year term is probably right for you.
Just worried about covering your child’s upbringing? A 20-year term might do it. The longer the term, the higher the premium, so it’s worth it to figure out how long a term you need. Keep in mind that your life insurance rates increase as you age, so deciding on a shorter term now with plans to re-up with a new plan later could be an expensive proposition, especially if your health puts you in a higher-premium insurance class.
When calculating how much life insurance you need as a new parent, it’s important to think about what would happen if you or your spouse were to die today. How much would the surviving spouse need right now for mortgage or rent payments, formula, diapers, and childcare, and – down the road – how much would they need for college savings or their own retirement?
The USDA estimates the average cost of raising a child from birth to age 18 is $233,610 for families with a household income from $59,200 to $107,400. But single parents making $59,200 or more will spend $319,020 to raise a child — 36% more.
Most financial advisors say that 10 to 12 times your annual salary is a good place to start, but a tool like Policygenius’s life insurance calculator can help you find the best number for your particular situation. Prefer a personal recommendation? A Policygenius advisor can help you decide a term length and coverage amount that makes sense for you.
Many people assume that the life insurance coverage they have through work is enough — but it rarely is. Plus, the group coverage you may get through work is tied to your employment, which means that if you leave your job, you lose your coverage.
New parents need their own life insurance policies that they can keep no matter what happens with their careers, so their families are protected.
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Both parents do need life insurance. Even if one parent isn’t working, the domestic work that they provide, including childcare, would need to be outsourced if they were not around, and that could have a significant impact on your budget.
Plus, a life insurance benefit would be a way for the surviving parent to take some time off to grieve or even move closer to family.
There are no limits to what you can spend a life insurance benefit on, and having that protection in place can mean that a life-changing tragedy doesn’t have to change everything.
It’s best for each parent to have their own life insurance policy, but sometimes it makes sense for parents to share one policy (if, for example, one parent cannot qualify for their own life insurance, a joint life insurance policy would be one way for them to get coverage).
If you’re a newly single parent, life insurance is especially important. As a single parent, your child might rely solely on your income, so they’ll need financial coverage if you’re gone. A life insurance death benefit can help pay for your children’s everyday expenses, continuing education and overall financial stability.
When naming beneficiaries for your life insurance policy, most parents generally name one another as the primary beneficiary. (And in community property states, if you’re married to your co-parent, it’s the law.)
However, it’s important for parents to also have a contingent beneficiary in case something should happen to them both. A contingent beneficiary is a beneficiary who only gets the benefit if the primary beneficiary has died or cannot be located.
We do not recommend naming a minor child as a beneficiary. Although children can be named beneficiaries, they can’t collect the death benefit if they are under the “age of majority” (18 in every state except Alabama and Nebraska, where it’s 19). If a minor child is named a beneficiary, the court will appoint a custodian, a process that can take time and keep your child and their actual guardians from accessing the funds after your death.
We recommend speaking with a lawyer, either to set up a trust or denote a custodian for assets under the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) laws, which allow you to give an asset to a minor for use when he or she comes of age. The custodian can use those assets for qualified expenses for the benefit of the child until the child reaches that age.
This can be confusing. But because the life insurance application process can take a while, we recommend naming your spouse as the beneficiary when you apply, and then setting up your will, UGMA/UTMA accounts or trusts, and contingent beneficiaries after the policy is in place.
That said, most life insurance policies that new parents will buy for themselves have the option to add something called a child insurance rider. These are optional additions to your insurance policy that provide a small death benefit if one of your children dies.
Child insurance riders are generally priced per $1,000 or $5,000 unit of coverage and are available in amounts from $10,000 to $100,000, depending on the carrier. A $10,000 death benefit, which is enough to cover the cost of the average funeral, may cost an additional $50 for a year, for example.
One child insurance rider will cover all current and future children.
Whether you’re thinking about having children in the future, are a new parent, are recently pregnant or are in the process of adopting, the best time to get life insurance is now. Life insurance rates increase by about 8% every year as you age, so it’s best to secure financial protection now if you think you’ll have dependents later.
A term life insurance policy between 20 to 30 years is the best option for most new parents because it secures coverage while your children depend on your income most. Both parents, regardless of whether they are the breadwinner, need life insurance coverage because stay-at-home parents provide childcare and other domestic work that a surviving working parent will need to cover if something happens.