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A Guide to Life Insurance for New Parents

Life Insurance
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New parent holding their newborn baby consider life insurance for new parents

Becoming a parent completely changes you: your priorities, your perspective — your sleeping patterns. You might also have a new focus on the future and giving your children everything they need to live healthy and happy lives.

As a new parent, it's hard to think about what would happen if you were to die, but it's important to be prepared. Here are some considerations concerning life insurance for new parents.

How Life Insurance Works

A life insurance policy provides a cash payout, known as the death benefit, to your beneficiary when you die. There are several different types of life insurance. The payment of the death benefit will vary based on the policy purchased.

Though you can apply for life insurance at any time, there's an application and approval process during which you will answer questions about your medical history. You may also have to provide your medical records and you may undergo a medical exam. Your age, health and lifestyle habits (for example, smoking) can all factor into whether you're approved for a policy, the policy's death benefit and how much you pay in monthly premiums.

Why Consider Life Insurance?

As a new parent, you might be reading about life insurance now because you want to replace lost income if you die unexpectedly or prematurely. Whether it's rent, a mortgage, child care costs, food or utilities, life insurance could help your family pay daily living expenses if you're no longer around.

Parents who work primarily inside the home might consider life insurance as well. Stay-at-home parents tend to do a lot of unpaid, but invaluable, work every day — from cooking and cleaning to transporting children to school, doctor's appointments and sports.

If a stay-at-home parent dies unexpectedly, a life insurance policy could help a surviving spouse or other guardian to stay at home for some time or to hire help to cover some of the responsibilities of the deceased parent.

Types of Life Insurance to Consider

Life insurance comes in two forms: term life and permanent life insurance. Term life insurance provides coverage for a designated period. If you die during the policy term, your beneficiary will receive the death benefit. However, if you die after the policy has expired, your beneficiary will not receive a cash payout.

Permanent life insurance never expires as long as premiums are paid. This is one of the reasons permanent life insurance can be more expensive than term life insurance. Universal life insurance is one type of permanent life insurance that you may want to consider. With a universal life insurance policy, you may have the flexibility to adjust your coverage to suit your needs as life changes. Just keep in mind that there must be enough cash value in the policy to cover monthly charges if a lower premium is paid than the amount selected at issue or if a premium payment is skipped. Additional premium payments may need to be made to keep the policy in force.

Whole life insurance is a type of permanent insurance that includes a cash value component. You can borrow against your policy's cash value, use it to pay your premiums or withdraw some of it to cover expenses while you're still alive. The cash value benefit can increase every year as you contribute premiums to the policy, and some insurance companies also pay interest on your cash value balance. Cash value loans accrue interest, however, and loans and withdrawals may generate income tax liabilities. In addition to reducing the cash value, loans and withdrawals can also reduce the value of the death benefit and may cause the policy to lapse.

How Much Life Insurance Should You Buy?

Every person's life insurance needs will differ. You'll likely want to think through your family's future expenses. For instance, as a new parent, you may want to consider the cost of college tuition. A life insurance policy can help your child pay for college if you are no longer here and unable to help them.

Also, consider who you might name as the policy's beneficiary. For many new parents, this might be your spouse. However, you could choose to name a grandparent, sibling or another trusted relative as the beneficiary. They could then help manage the money to serve your young child's financial needs if you were to pass away.

Setting up a trust for your children could be another option. You can name the trust as the beneficiary and designate a trustee, who will act as the legal owner of the assets in the trust. Consider meeting with an estate planning attorney if you're interested in creating a trust.

Life insurance for new parents is one way to help support your family if you were to die. Though it's difficult to think about, you likely want to do everything possible to make sure your family is taken care of. A life insurance policy for parents is one way to help give your family that financial security.

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IMPORTANT DISCLOSURES
Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.