The crib. The bouncer. The swaddles. The sleep sack. The stroller(s). As you look at endless registry lists, you’re probably wondering why a tiny person needs so much stuff. And the truth, that many seasoned parents will tell you? They don’t. But while the duck adorned pajamas, teeny tiny booties, and monogrammed infant towels can be crossed off your list, there are a few other things to buy that you may not have considered.
While a life insurance policy may not have the cuuuuuute factor found in other items on your registry, making sure that you and your family are covered with adequate insurance coverage is a critical step in making sure your child truly will have everything they need, in case the unexpected were to happen. Because, there are some things a ducky blanket just can’t cover.
Why new parents need to think about insurance
We know, we know: The advice to get a bunch of policies might start to sound like a broken record to you, but you need to resist the temptation to put it on mute.
Reevaluating your insurance needs should be part of the process of starting a family because your policies and coverage are no longer just for you. Getting the right insurance helps protect your growing family’s financial stability.
No one wants to spend a lot of time thinking about worst-case scenarios (especially when something so exciting and joyous is in the near future.) If that’s how you feel — and it’s making you want to avoid the topic altogether — it might help to understand the vital importance of proper insurance.
It’s something that protects your growing family and helps ensure that the children you love so much will be provided for. So with the goal of peace of mind at the forefront, let’s take a look at what types of insurance new parents should consider to help achieve the goal of protecting and providing for your new addition to the family.
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Term life insurance
“I recommend at least a term life insurance policy for both parents. The death benefit should at least be enough to cover the loss of income to either parent for at least a 20 to 30 year period,” said Shannah Game, CERTIFIED FINANCIAL PLANNER professional and host of Your Millennial Money Podcast.
A term life insurance policy is a financial safety net for your partner and child. The proceeds of a life insurance policy can be used to help cover expenses like the mortgage, childcare, and other day-to-day bills. Term life insurance comes well recommended because it offers affordable protection that covers you for a specific period of time —– like when your children are minors, and you and your partner are both actively earning money and trying to save. A healthy 35-year-old woman can buy a 20-year, $500,000 Haven Term policy, issued by MassMutual, starting at about $19 per month.
Depending on your financial situation, you might not always need life insurance, so having a policy that does end at some point in the future makes sense for many young families.
As Shannah states, it’s essential for both parents to have coverage because even if one spouse stays at home and doesn’t technically earn a paycheck, they’re still doing very valuable work that would come with a tangible cost to replace.
How much would it cost you to hire 24/7 childcare? What about a live-in chef, housekeeper, gardener — and any other role the partner who stays at home fulfills as part of their everyday work? That’s a significant amount of money, and replacing the labor a stay-at-home spouse performs may very well cost far more than a single-income household can manage should something happen to your partner.
Even if you have some kind of life insurance policy now, new parents need to take time to evaluate those policies and consider whether they might want to put additional coverage into place. “Soon after we found out we were expecting, my wife and I purchased life insurance because the limits on our old policies would have been outdated with the expected addition,” says R.J. Weiss, a CFP who runs the site The Ways to Wealth.
Weiss also points out that new parents need to protect against the changes in their household as soon as they find out they’re expecting — not once the baby is here. ‘The sooner the better regarding evaluating options,” he advises.
Ben Luthi, a financial writer and new parent himself, agrees. From his own experience, he recommends new parents plan ahead not only for a policy but for the coverage you may need in the future. “Locking in a lower rate can protect you from potential premium increases due to getting older and health issues,” he says.
Disability income insurance
Disability Income insurance is an insurance policy that’s often overlooked when you may need it most, even though it can help you protect one of your most valuable assets as a young, working professional: Your ability to earn an income. Disability Income insurance can pay you a monthly benefit to replace a portion of your income should you become too sick or injured to work.
Even if you feel like you don’t have a dangerous job and think you’re unlikely to become disabled, accidents do happen. In fact, one in five Americans lives with a disability. And beyond that, debilitating illnesses like cancer can strike anyone, regardless of career path.
Disability income insurance comes in a few different forms, and you may need multiple policies to completely cover your needs. Below, common ones new parents should consider.
Short-term disability insurance
This type of policy only lasts for a few months (usually around 10-12 weeks) and the benefit kicks in quickly (often 7 days after the disability occurs). The premiums typically cost about one to three percent of your annual earnings, although that price will depend on your age and occupation.
If you’re planning to conceive, having short-term disability insurance can help augment your maternity leave plans. You may want to look at what your employer offers; if your employer doesn’t provide paid leave, short-term disability can pay part (usually between 60% to 80%) of your salary for the weeks — usually around 10 to 12 — postpartum. Your employer may offer short-term disability, or you may wish to purchase one on your own. Note that short-term disability is not affiliated with FMLA, although they may run concurrently, and only the partner who has given birth will qualify for short-term disability.
Long-term disability insurance
This type of policy is designed to protect you for a longer period of time. Your benefits might start months after your disability, but your coverage lasts far longer, too (usually until you can return to work, or for a number of years as defined by your policy). The price of long-term disability varies depending on your income. If you make around $50,000 per year, you might pay between $60 and $125 per month. If you earn more, expect your premiums to be higher (or if you earn less, you’ll pay less on this kind of policy).
You may want both short- and long-term disability policies to protect your income for a longer period of time. Or, you might opt for long-term disability only. In this case, it’s wise to keep an emergency fund on hand that can help cover your income between the time of your disability and the few months before the long-term disability benefit kicks in.
Yes, we know you already have this — but it’s worth mentioning again, as getting pregnant or having a new child means revisiting and potentially updating your coverage to reflect your new needs. “You’ll want to add your new child to your existing medical plan,” says Weiss. “Compare the costs if you and your spouse have different plans to choose the best one for your family.”
He reminds new parents that if a current medical plan was purchased on the exchange, having a child is considered a qualifying life event, meaning you qualify for a special enrollment period — so don’t just wait until open enrollment to make changes.
If you haven’t yet, you may want to consider the pros and cons of high deductible health plans, which have lower premiums and higher deductibles than traditional health plans. They allow you to take advantage of health savings accounts (HSAs). You make contributions to fund your account. HSAs are really useful thanks to their tax advantages and can help you make the most of the money you spend on healthcare (which will likely increase with a newborn and young child around). However, it’s important to note that with high deductible health plans, you’ll have to pay for medical expenses until you’ve met the plan’s deductible.
If you have an HSA already, check to see if you’re contributing the maximum allowable amount if you switch your health insurance from a single individual to a family plan.
Insurance to help protect a growing family
While exploring insurance options as a new parent may seem overwhelming, remember that the different types of coverage available are there to help protect your family, were the unexpected to occur. By making sure you’re covered now, you’re giving yourself, your partner, and your children peace of mind. If you’re expecting, having these policies in place can be an important, but often overlooked, to-do before your baby’s birth.
So how do you get started? First, evaluate what policies you do have and see what you need to update to adequately protect your growing family. Then, consider the policies you might not have needed before kids — but now may need to put into place to protect your children, now and in the future.
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Kali Hawlk is a freelance financial writer and blogger. She lives in Boston and writes on mindful living through intentional spending.