Life Insurance for Young Families
Get a free quote
It only takes a few seconds!
Everything you need to know about Life Insurance for Young Families
What is life insurance for new parents?
One of the primary reasons for getting life insurance is to provide financial protection to family members and dependents if the unthinkable happens. For many people, starting a family is actually what inspires them to purchase a life insurance policy in the first place.
Having a child—especially a first child—comes with an array of new responsibilities, both personal and financial. New parents not only have to think about how to care for a new child and how to manage their new schedules, but also how they will support their child both in the short and long term, from diapers and nutrition, to years of education. Life insurance can help.
Why do new parents need life insurance?
There are a number of reasons why life insurance is beneficial to families, and especially new parents. Let’s take a look at some of the main reasons new parents should consider buying a life insurance policy:
- Income replacement: Life insurance provides a vital safety net, offering financial support to your family if you are no longer around. In other words, a life insurance policy will issue a death benefit to your partner and children (whoever has been named beneficiary) in the event of your death. This money can be used as income replacement, allowing your family to maintain a stable quality of life.
- Protect family from debt: It is impossible to know the future, but it is possible to plan for it. If a parent dies before a mortgage is paid off, a life insurance benefit can be put towards mortgage payments. This not only alleviates the burden of paying monthly mortgage bills with a reduced family income, it also enables your loved ones to remain in the family home if desired.
- Education funds: If you die before seeing your child off to high school or college, it doesn’t mean you can’t support them through the process in some way. A life insurance benefit can not only be used to pay off debts and as income replacement: any leftover benefit can be put away into an education fund for your child or children. This provides long-term financial support to your child as they pursue their future careers or goals.
- Lower premiums: Any life insurance expert will tell you that the earlier in life you buy life insurance, the cheaper it will be. That’s why it is beneficial for parents to purchase a life insurance policy as soon as possible. In short, the younger and healthier you are, the cheaper your life insurance premiums will be, whether you are buying a term or permanent life insurance policy.
Get a free quote
Types of life insurance for new parents
Term life insurance: Term life insurance is a popular option for new parents, as it provides affordable fixed premiums and coverage for a set period of time, known as a term. It is not uncommon for new parents to purchase term life insurance that covers enough years for their children to grow up and become financially independent. When the life insurance term expires, parents can also choose to renew or convert their policy to extend coverage.
Permanent life insurance: Permanent life insurance, which includes whole life insurance and universal life insurance, is a good option for new parents seeking lifelong coverage. While premiums for permanent life insurance are higher than term life insurance, the policies remain active until you die, providing a guaranteed death benefit for your beneficiary. New parents can also take advantage of the investment opportunities available with permanent life insurance as well as the growing cash value of the policy.
Joint life insurance: If you are raising your child with a spouse or co-parent, joint life insurance is a viable option. This type of insurance policy has two formats: joint first-to-die life insurance and combined life insurance. In both cases, joint life insurance provides coverage for both parents, with lower premium rates and administration fees. Let’s take a closer look at how joint life insurance works for new parents.
Get joint life insurance
Some of the best life insurance for young families comes in the form of a joint life insurance policy. There are two types of joint life insurance: joint first-to-die life insurance and combined life insurance.
Joint first-to-die life insurance is a policy that covers both parents with a single death benefit. Essentially, the policy pays out when the first parent dies, and the death benefit goes to the surviving parent. This means that the coverage ceases when the first insured parent dies, though many insurance providers do offer options for continued coverage. In terms of premiums, joint first-to-die has lower premiums than two standalone life insurance policies, but slightly higher premiums than a single person policy.
Combined life insurance, by contrast, is when two individual life insurance policies (one for each parent) are issued by the same life insurance provider. The benefit of combined life insurance is that the insurance company will typically waive administration fees for one of the policies, leading to lower premiums. Combined life insurance is especially beneficial in cases where there may be an income disparity between the two parents, thus requiring different coverage amounts.
We should also mention that even if you have life insurance coverage through your employer, it may not be sufficient for your family’s needs. Because group life insurance policies offered by employers are tied to the job and have limited coverage, you should consider buying supplemental life insurance that will remain in place even if you leave your job.
Don’t forget to name your beneficiaries
A vital part of buying life insurance is naming a beneficiary, or multiple beneficiaries. This is the person or people who will receive the death benefit when the insured person dies. For new parents, it is common to name the spouse or co-parent as a beneficiary. It is also possible to name your child or children as beneficiaries for your life insurance policy. In this case, if the death benefit is issued before the child comes of age, it is often put into a trust until they can legally access it. In the meantime, trusts can be managed by a guardian or attorney (the trustee), who will follow instructions on how to release and spend the money for the child’s benefit.
How much life insurance do young parents need?
Life as a new parent can sometimes coincide with other big financial milestones, such as buying a house or settling into a stable job. This and other factors are hugely influential in deciding how much life insurance coverage parents need. On a base level, it is important that your life insurance policy be big enough to cover any debts you have—especially mortgage—so that your family isn’t saddled with your financial burden.
Many parents also seek to use life insurance as potential income replacement to provide financial stability to their families even when they are gone. In this case, the choice is highly personal: do you need income replacement for just a few years or enough to cover your family’s needs until your children become independent? If estate building is part of your life insurance strategy, a sizeable permanent life insurance policy is likely the right choice.
To sum it up:
- Calculate your debts, including mortgage, car loans, etc.
- Calculate how many years of income you want to replace.
- Take into account if you want your policy to provide long-term support in the form of education funds and estate building.
Our dedicated guide can help you determine how much life insurance coverage you need.
What Will Life Insurance Cost Me?
What’s the best life insurance for new parents?
Just as every family has different needs, the best life insurance for young parents varies from household to household. If your priority is providing financial support to your young family in the event you die, a 20 or 25-year term life insurance policy is a suitable option. This type of policy will issue a death benefit if you die before your child or children come of age and have some degree of financial independence. If you not only want to provide income replacement to your family but also want to create an estate and pass down wealth, a permanent life insurance policy is advisable.
Don’t hesitate to get in touch with one of our life insurance experts to find the best life insurance for your new family. In the meantime, get an instant life insurance quote customized to your preferences and financial needs.
When should new parents buy life insurance?
New parents should buy life insurance as soon as possible—after all, premiums increase with age, so the younger you invest in a policy the cheaper it will be. For many, it is also advisable to integrate life insurance into family planning, and seek out the best life insurance for young families before bringing a new baby home. This will ensure your policy is active as soon as your child arrives, without adding a life insurance application to the stress of caring for a newborn. That being said, it’s never too late to buy life insurance, though premiums may increase.
Do single parents need life insurance?
Yes, single parents can benefit from having a life insurance policy, especially if they are the household’s sole provider. Having a life insurance policy in place will insulate your children from the financial impact of losing you, protecting them from any debts you may have as well as providing financial support for the short or long term, depending on the size of policy.
Do new parents need a medical exam to get life insurance?
As a new parent, you don’t necessarily need a medical exam to get life insurance. There are a growing number of no medical life insurance policies with increasingly competitive rates, especially if you are young and healthy. It should be noted, however, that new parents willing to undergo a medical exam for a fully underwritten policy will have access to lower premiums and higher amounts of coverage.
Who should new parents name as their beneficiaries?
There is no one right answer for who new parents should name as their beneficiaries. In many cases, a parent will choose their spouse or co-parent as the beneficiary for their policy. Single parents can name their child (or children) as beneficiary and institute a trust or guardian to manage the money until the child comes of age.
Should new parents buy life insurance for their newborn baby?
There are advantages to buying a new baby life insurance, especially permanent life insurance. For instance, buying permanent coverage for your child will ensure that they are insurable, even if they develop health conditions later in life. The increasing cash value of a permanent policy and investment income can also provide financial support to your child throughout their life, whether it’s for education, buying their first home, or paying for their life insurance premiums.