New parents life insurance guide: Tips for your growing family

Welcoming your first child 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 shuteye, don’t forget one important task that may not be on your radar: life insurance.

The first time you looked at your bundle of joy, you knew you’d do anything to help protect and keep them safe. As you embark on your parenthood journey, it’s the ideal time to purchase life insurance, an important safeguard for your family’s security in your absence.

Our guide to life insurance for new parents will provide you with the information you need to make an informed decision to help protect your family.

Bringing up baby (and beyond) is expensive. As a new parent, you’re responsible for every aspect of your child’s wellbeing. From the basics like clothing, food and shelter through 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, when you die. This money helps to support your family after your death and helps provide for your children financially in your absence. The death benefit can fund anything from daily expenses to goals your children may have in the future, like college or travel.

Think of life insurance as a way to help replace your income for your family if you die. Even if you don’t earn a salary, life insurance can pay for childcare as well as other future expenses.

New parents can choose from term life insurance or whole life insurance policies. Term policies are in place for a set period of time – often between 10 and 30 years – and are more affordable than whole life, which may make them a better fit.

When your young family is growing, you have a lot of expenses, so term life insurance’s affordability is advantageous. In an ideal scenario, your children will reach adulthood and be financially independent within the timeframe of a typical term. These decades also represent the time period in which you may reach peak earning potential, increasing the likelihood that you could pay off your mortgage and other debts as well as accumulate a comfortable savings nest egg.

Whole life insurance is a type of permanent life insurance, meaning it is in effect for your entire life, with no expiration date, so long as you pay your premiums. Also known as cash-value insurance, this type of policy includes a separate investment component that you can borrow against or cash out, with significant caveats. Whole life insurance can be much more expensive than term life insurance, which could be a significant drawback for new parents. One exception might be if you’re the parent of a lifelong dependent, such as a child with a major disability, because the policy will never expire.

A general guideline for everyone is to buy life insurance as soon as possible, and this recommendation applies to new parents too. Your policy premiums will increase with age, so the younger you are wheld-i-buy-life-insurance/n you purchase life insurance, the better off you’ll be.

Parenthood will alter your life in almost every aspect. If you’re carrying a baby, consider purchasing a policy early in your pregnancy. A newborn will keep you on your toes, so cross life insurance off your to-do list before your role as a parent takes center stage.

When deciding how much life insurance you need as a parent, think about how much money your co-parent would need to cover everything from the rent to groceries to extracurriculars and more, should you die.

New parents need to think about not just how to provide for their partner’s future needs but those of their children, too. According to the USDA, the average cost of raising a child is approximately $12,980 per year per child in a middle-income ($59,200-$107,400), two-child, married couple family. For a child born in 2015, parents may expect to spend $284,570 (when factoring in projected inflation) through age 17*.

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. Costs including tuition, housing, food and more quickly add up.

The only constant in life is change, and becoming a parent is one of the largest you’ll likely face. 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.

Parenthood will bring joy and challenges in equal measure. When it comes to raising your little one, you’ll get plenty of on-the-job training. You can’t prepare for every hurdle you’ll face along the way, but buying life insurance as a new parent can be one of the best decisions you can make for the future of your family.

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. The flexible format allows you to Ladder down your coverage (and premium) as your life evolves or apply to Ladder up as your family grows.

* The Cost of Raising a Child, USDA 2/12/2020

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.