Cost & Coverage
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What you need to know about life insurance when you add a child to the mix.
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. (For now at least, the federal government seems to have decided that 26 — the age when kids get kicked of their parents' health insurance — is the age when kids become independent.) That means that 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.
There’s no time like the present to buy life insurance. Your rates rise on average 8% each year as you age, plus new diagnoses can mean higher rates, too. If you’re having or adopting a child, we suggest applying ASAP.
If you’ve given birth very recently, the 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 reading this page because you’re about to become a parent, we suggest you apply now, too! In fact, the very best time for women who are planning to have kids to apply for life insurance is before they get pregnant, to ensure that your rates are not affected by pregnancy weight gain or complications (and to ensure that you’re covered during the birth).
And if you’re adopting, you should know, too, that the life insurance application process can take 4-6 weeks, so it may make sense to get it started before you meet your child, to ensure they’ll be protected 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, which is “pure 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.
Some people don’t like the idea of that it expires, but in truth, most of us don’t need life insurance our whole lives. At some point, our kids will be grown, our houses paid off, and our retirements funded — no one will depend on us 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 $234,000 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 a 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 almost never 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 personal life insurance policies that they can keep no matter what happens with their career, 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 do with a life insurance benefit, 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).
When naming beneficiaries for your life insurance policy, most parents generally name each other 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.
Most advisors will recommend against naming a child as a beneficiary. That’s because, while children can be named beneficiaries, they can’t collect the death benefit. 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.
Buying life insurance for children rarely makes sense. Life insurance is intended to be income replacement, and children don’t have incomes that need to be replaced.
That said, most life insurance policies that new parents will buy for themselves will have the option to add something called a child insurance rider. These are optional additions to your own 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.
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