Welcoming a child into the world is a joyous occasion, filled with excitement and a packed to-do list. In between the diaper changes, feedings and trying to get a few precious hours of shut-eye, don’t forget one important task: considering life insurance.
Read more: Save for your growing family with Ally Bank’s buckets and boosters
Why do new parents need life insurance?
As a new parent, you’re responsible for every aspect of your child’s well-being. From the basics like clothing, food and shelter to extracurricular activities and eventually, higher education, the costs of caring for your children add up quickly.
Life insurance pays out a death benefit to a beneficiary, such as your spouse or co-parent, to help support and provide for your family after your death. This benefit can fund anything from daily expenses to goals your children may have in the future, like college or travel.
When should new parents buy life insurance?
Policy premiums increase with age, so the younger you are when you purchase life insurance, the better your chances at a lower rate.
How much does life insurance cost?
The cost of a life insurance policy will vary depending on factors like age, gender, health, coverage amount, term length and the type of policy.
Life insurance pays out a death benefit to a beneficiary, such as your spouse or co-parent, to help support and provide for your family after your death.
What life insurance policy is best for new parents?
New parents can choose from several types of life insurance, including permanent life insurance or term life insurance policies.
Permanent life insurance
Designed to provide coverage for your entire life, permanent life insurance offers a death benefit and includes a cash value component, which can grow over time and be accessed through loans or withdrawals. While this coverage is more expensive than term life insurance, it could be a good choice for parents of a lifelong dependent, such as a child with a major disability, because the policy will never expire.
Term life insurance
Term policies are in place for a set time – often between 10 and 30 years – and are more affordable than permanent life. When your young family is growing, you have a lot of expenses, so term life insurance’s affordability could be advantageous.
How much life insurance do new parents need?
In the event of your death, your co-parent will likely be financially responsible for everything from rent and groceries to your child’s extracurriculars and education. The average cost of raising a child is approximately $29,419 per year, meaning you’ll want to choose a policy that can help take some of the financial burden off your co-parent.
Determining the precise amount of life insurance you need depends on your life stage, goals and budget. A popular rule of thumb is to purchase a policy worth 10 times your income. The DIME (debt, income, mortgage and education) method takes the 10-times-your-income guideline a bit further by also factoring in college expenses for your children. Higher education costs including tuition, housing, food and more quickly add up.
What is life insurance laddering?
A popular strategy to adapt life insurance to meet your changing needs is to “ladder” policies. With this approach, you buy multiple term life insurance policies with different expiration dates. Because rates go up as you age, laddering enables you to get the maximum amount of life insurance you need over your lifetime at the best price.
Your needs also typically decrease as time goes on, so laddering allows you to have smaller amounts in coverage as your expenses decrease. For example, you can have a larger policy in place that factors in your mortgage until the point when you expect to have paid it off, and then a new, smaller amount of coverage after that.
Start your parenthood journey with confidence
Parenthood will bring joy and challenges in equal measure. While you can’t prepare for every hurdle you’ll face along the way, buying life insurance as a new parent can help you prepare and make tough moments a little less stressful.
Ally has teamed up with Ladder to offer affordable term life insurance that meets your family’s needs. Apply online in as little as five minutes and get an immediate coverage decision.
Disclosures: Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers – for further details see www.ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
