Becoming a parent is one of the most amazing – and terrifying – experiences a person can have. One minute, you’re an independent adult who is carefully planning their future (and sleeping past 6 a.m.). The next minute, you’re bringing your new bundle of joy home and wondering, “How am I going to keep this tiny, adorable human that is completely depending on me alive?”
It’s scary for sure, but you also have so much to look forward to. Having a child adds meaning to your life in ways you’d never expect. When your baby cries, you learn the right way to hold them and calm their fears. And when your baby accomplishes a new feat – even something as simple as rolling over – you get to celebrate right along with them.
Of course, becoming a parent isn’t all sunshine and rainbows. In addition to the fun times, there are plenty of real responsibilities to take care of, too. After all, your baby won’t stay small forever. One day, he or she will go to grade school, play sports, and make friends. And before you know it, they’ll fly the coop to attend college and build a life of their own.
Until that day comes, it’s up to you to make the right decisions so you can provide for your family. Even if that means planning for how to protect them financially in the event you were no longer around. Here’s what you need to know about life insurance for new parents.
Buying life insurance as a new parent
While buying life insurance might feel overwhelming, it’s really not. Or, at least, it doesn’t need to be overwhelming. The process has seen some pretty significant improvements and streamlining in recent years. For example, with Haven Life, you could fill out an application entirely online in minutes and receive an instant decision on term life insurance coverage. Some qualified, healthy applicants up to the age of 45 may be able to skip the medical exam entirely through our InstantTerm process.
This should come as very welcome news to parents, who by nature are busy (putting it mildly). Removing the waiting and confusion from life insurance means you now have even fewer reasons to put off purchasing a very necessary product.
But before you take the plunge on a policy of your own, there are certain things you should consider when deciding on a proper life insurance coverage amount.
Kids are expensive to raise
The costs of raising one child to 18 years old for a middle-income family is $233,610, according to estimates by the U.S. Department of Agriculture. This amount considers basics like housing, food, education, and daycare, along with the fact that child-rearing expenses tend to rise with age. Keep in mind, that amount can vary drastically depending on where you live and how frugal or not your lifestyle is.
Ask yourself this simple question: could your spouse or partner handle all of the child-related expenses if you were suddenly gone tomorrow? For most people, the answer is no.
This is where life insurance coverage becomes so important. It can help ensure your partner can financially care for the children if you were no longer around. In exchange for your monthly premiums for a term life insurance policy, the life insurance company pays out a death benefit (in the amount of the life insurance coverage you purchased) that your beneficiary or beneficiaries can use to help cover their expenses.
But peace of mind is perhaps the most important intangible benefit associated with purchasing a life insurance policy. It gives you the reassurance that you’re leaving behind financial protection for your loved ones. The beneficiary (or beneficiaries) can use the policy’s death benefit to help pay for funeral costs, meet day-to-day living expenses or plan for the future.
Of course, calculating all the expenses associated with raising children to determine how much term life insurance coverage you need can be tricky. You can use a life insurance calculator to help you sort through all the costs associated with your family’s future to give you an estimate of sufficient coverage.
Don’t forget about college
We already mentioned how expensive raising a child to the age of 18 can be. But, the daily costs of food and shelter don’t always end when your child leaves high school.
If you plan to pay for your child’s higher education, then you should factor in the cost of college when you buy life insurance. (The aforementioned life insurance calculator does this, too, by the way.)
For the 2018-2019 school year, average tuition, fees, room and board at a public, in-state university was $21,370, according to the College Board. At a private, non-profit school, average tuition, fees, room and board worked out to $48,510 per year. Over the past decade, college costs have risen faster than the rate of inflation.
With enough life insurance coverage, you could help your kids pay tuition and avoid the stifling levels of student debt so many of today’s young adults face.
Stay-at-home parents are very valuable
Many assume a life insurance policy for a stay-at-home-parent isn’t needed because they don’t earn a “salary.” This isn’t the case.
Stay-at-home moms and dads may not bring in a paycheck, but consider all they do for the household. Most stay-at-home parents shuttle kids around, cook and clean, help kids with homework, do laundry and dishes, and make most meals for the family – and that’s just the bare minimum.
If you add up a stay-at-home parent’s responsibilities, they would make about $162,581 for the 92 hours of work they do each week, according to an annual survey from Salary.com.
It’s imperative that you consider how/if the surviving spouse could afford to maintain all of that work. Often, that means paying for daycare and household help. While parents are irreplaceable, the proceeds of a life insurance policy can be used to help bridge the financial gap and pay for this type of support.
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Employer-provided life insurance usually isn’t enough
Employer-provided life insurance, known as group life insurance, is a great work perk. However, it can leave parents underinsured and potentially without coverage when they switch jobs.
Most employer-provided policies only offer coverage that’s 1 or 2 times your annual salary. You can usually purchase more coverage if you want, but it’s at a “group rate.” This means you often don’t benefit from the rates you’d get as a young, healthy new parent like you would with an individual life insurance policy.
Additionally, life insurance should go where you go. Many employer-provided policies are not portable, and if you have that option, it’ll cost you more.
Your best bet is to get an individual life insurance policy while you’re young and healthy. Many people start by considering life insurance coverage of 5 to 10 times their annual income.Revisit your life insurance as your lifestyle changes.
As a new parent, there may still be many unknowns in your future and overall earning potential and expenses. Perhaps you’re just getting started in a new career – or maybe you plan to head back to school to earn an advanced degree. Maybe you’re renting a home but plan to buy soon.
How can you tell how much life insurance you require when your income and circumstances are bound to change?
Here’s something to remember: buying life insurance isn’t something you’re locked into doing just once. Remember to revisit your life insurance needs as your lifestyle changes and your family grows.
Keep in mind that, when it comes to life insurance, something is definitely better than nothing. However, a policy with a sufficient term length and coverage amount can help ensure adequate financial protection.
Life insurance costs less than you think
With the price tag for children climbing each year, you may believe that you can’t afford life insurance coverage. Think again. Across the board, term life insurance policies are a lot more affordable than most people realize. And if you buy while you’re young and healthy, you can lock in a low rate. For example, a 30-year-old woman in excellent health could get a 30-year, $500,000 Haven Term policy, issued by MassMutual, starting at $30.23 per month.
As part of your financial backup plan, term life insurance is one of the most budget-friendly options. For the price of a single meal out each month, you can potentially protect your family with hundreds of thousands of dollars in coverage.
Determine how much coverage you need
Life insurance is a very personal product, and thus, every family needs a different and specific amount. Factors like your health, salary, debts, and living expenses impact how much insurance is right for you. An online life insurance calculator can help you confidently (and quickly) figure out how much coverage you need. No guesswork or air math required.
As a parent, you know all about the unexpected. You deal with it every day (and sometimes in the middle of the night).
Term life insurance offers peace of mind in knowing that your loved ones are financially protected. Now there’s something big you can check off that seemingly infinite to-do list.