Life Insurance for New Parents

If you’re expecting to grow your family in the near future, you’re not alone: According to the 2022 Northwestern Mutual Great Realization survey, 21 percent of people who plan to make major life changes over the next two years say one of them is having kids.

But while setting up a nursery or stocking up on diapers may seem like the biggest priority for many soon-to-be parents, there are important financial to-do's to think about, too. One you may want to consider adding to the list? Getting life insurance.

Life insurance for new parents

Why life insurance is critical for new parents

Choosing a life insurance policy may not sound like the most urgent baby prep task. But getting coverage in place can give you peace of mind that your child will be provided for if something were to happen to you. Life insurance protects your family financially, which is why it’s a critical part of financial planning for new parents.

Choosing the right amount of death benefit

One of the first questions you’ll want to ask is how much life insurance you’ll need. In other words, how much death benefit would your family need if you were to die tomorrow? The death benefit is money your family members might use to pay for the mortgage, daily living expenses, college, weddings and maybe even your spouse’s retirement someday.

There are a number of general rules that you can use to get a sense of what you might need. One common rule is to get a death benefit that’s 10 times the annual salary you’re trying to replace. But this is really just a starting point, as a number of factors could impact whether you need more or less.

Types of life insurance for new parents

Just as options abound for cribs, strollers and all other baby things, life insurance also comes in different shapes and sizes. In general, life insurance policies typically fall into two buckets: permanent life insurance and term life insurance. While a term policy is the least expensive way to get the most death benefit, your coverage only lasts for a set number of years.

Permanent life insurance for new parents

A permanent policy will pay a death benefit someday (provided you pay the required premiums). In addition it accumulates cash value, a potential source of funding that could become an important part of your overall financial plan throughout your life. Because of this, permanent insurance tends to be more expensive than a term policy with the same death benefit.

Understanding level term insurance for new parents

Many parents find level term policies appealing. With level terms, the amount you pay remains constant through the entire insurance term (usually 10, 20 or sometimes 30 years). Since the cost of term insurance increases as you age, with level term, you overpay for your insurance at the start, and then save on premiums in later years.

Other types of term insurance for new parents

It’s also possible to get a term policy where you pay based on your age each year. This type of term policy tends to be the most affordable when you’re young, but the cost will increase over time. However, if you think you may want to convert to a permanent policy in the future, this type of term insurance may be the best option.

How life insurance for new parents fits into your larger plan

Because of its affordability, many new parents start with a large term policy to get the death benefit they need and a smaller permanent policy to begin to take advantage of the additional benefits permanent life insurance offers. Down the road, it’s possible to convert portions of the term policy to a permanent one over time.

Life insurance — particularly a permanent life insurance policy — is just one piece of a larger financial plan. A financial advisor can show you how it can interact with other pieces of the plan, like investments, as you work toward your goals over time.