A guide to life insurance for new parents

Your whole world changes when you become a parent. Caring for a child is a serious responsibility that lasts for decades. When thinking of the financial security of a growing family, new parents may want to consider life insurance.

Life insurance for parents can help ensure that children are cared for even if a parent or parents are no longer around.  A family life insurance plan may help you meet the responsibilities of parenting—no matter what happens in the future.

Why life insurance is important for new parents

Parents want to know that their children will have the means to pay bills, go to school, and build a successful life—even if they can no longer be there. The money provided by a family life insurance policy may help loved ones remain more stable and secure.

Life insurance may be particularly important for single parents or single-income households. Parents who do not work outside the home may also want to consider the substantial costs of paying someone to cover all the things they manage—from cooking and cleaning to child transportation. It is important to think about how the surviving parent would handle the financial obligations of the family if one parent passed. The payout from a life insurance policy may help families cover debts and monthly expenses, as well as future education or housing costs.

Types of life insurance for new parents

There are two major types of life insurance for new parents to consider: term life insurance and whole life insurance.

Term life insurance

Term life insurance provides coverage for a set period of time as long as payments are made. You can select the term, and it may be 10, 15, 20, or more years. If you pass away during the designated term, your family will receive the payment specified in your policy. They could use this money to help cover funeral expenses, monthly bills, debts, or education costs.

Term life insurance is typically designed to work best for a limited time. For example, sometimes parents will purchase term life insurance that will last only until their children become working adults. Term life insurance is also designed to be less expensive than whole life insurance, with lower payments.

Whole life insurance

Whole life insurance is designed to last the rest of your life, unlike term life insurance. As long as you keep your payments up to date, your insurance will remain active. Some families choose whole life insurance because it may include a cash account that gains interest. A small amount of the money that you pay each month is placed in a separate cash account for you. In time, it may be possible for you to borrow money from your account.

Determining the right coverage amount

Whether you select term or whole life insurance, you will need to consider the amount of coverage you want to purchase. This will depend on your family’s current financial needs and your best estimate of future expenses. Compare known or possible expenses against your known income and savings.

Choosing beneficiaries and guardians

The person who will receive the payout from your life insurance policy is known as a beneficiary. The application you complete for a policy will have an area where you are asked to write the name of your beneficiary (or “names” if you want more than one beneficiary).

After the insurance company approves your policy and it goes into effect, your beneficiary is set. You don’t have to do anything more unless or until you want to change your beneficiary.

It is important that you choose a trustworthy individual as your beneficiary. A lot of people name a close relative—like a spouse, brother or sister, or child—as a beneficiary. If you want to name a child under 18 as a beneficiary, you may want to consult with a lawyer to ensure the policy is set up correctly. There are special considerations when naming a minor as a beneficiary, and they vary according to the state you live in.

There may be instances in which you want to change beneficiaries. Usually, it happens because your life changes in a major way due to marriage, divorce or the birth of a child. In some cases, those big changes are also a good reason to think about changing the type of life insurance you have and how much coverage you need.

When to get life insurance

Any major life changing event is a good reason to consider life insurance. As your family grows and changes, you may want to reevaluate your coverage. For instance, if you start with a term life insurance policy and are about to outlive the term, you may want to consider converting your policy to a whole life insurance policy. Conversions from term to whole life must happen before your policy expires. Most insurance companies make it simple to convert your policy.

Understanding the life insurance process

The initial application process often only takes a few minutes and can be done online. Underwriting is a key part of the insurance approval process.

Underwriting is the process used to determine whether someone is eligible to receive a financial product like insurance. It involves gathering information about the health characteristics and risks of the person applying for coverage to help decide whether to accept or decline the application. The information gathered also helps determine the price (or premium) the company charges if it accepts the individual’s application.

The amount of information gathered during underwriting can vary according to the company, as well as the kind and amount of insurance being applied for. Sometimes it involves asking basic questions about health or other relevant information. Other times, the underwriter will request a detailed health history, some basic medical tests and/or a physical exam. Generally speaking, the underwriting process is more involved if the policy being applied for is for a large amount of money. In some cases, it’s also required to get an insurance company’s lowest rates.

Life insurance for families

Families will grow and change over decades. Knowing that your family has the added coverage that comes with life insurance may help give you confidence. Learn more about life insurance or get a quote from TruStage™ life insurance.