Are you thinking about starting a family? Are you expecting your first baby? Are you already knee-deep in diapers and long, wonderfully sleepless nights?
Congratulations! At the moment, you’ve probably got your hands full. (Now wash those hands, because babies are adorable germ factories.) But while you’re pondering whether to splurge on a Snoo, or freaking out after finally Googling daycare tuition in your neighborhood, it’s important to consider the future.
Like, the distant future—the one in which your little one is no longer so little, and you might not be there to support them.
Pondering that reality can be a bummer, but it’s also a responsible way to give your growing family some well-deserved peace of mind. We all want to live long enough to see our children grow up and start their own families. No one expects life to take an unfortunate turn of events. Creating a financial safety net for your children is one of the most important things you can do as a parent.
Let’s take a look at some of the options that are available to you.
How does it work?
Term life policies offered by Lemonade start at $9 a month. You can get choose a policy with a “term” lasting from 10 to 30 years, and offering from $50,000 to up to $1,500,000 of coverage. (FYI, when we talk about ‘how much coverage’ a plan has, we’re really talking about the total value of the death benefit your beneficiaries would receive in the event of your passing.)
If you’re married or in a relationship, many would choose to name their spouse or partner as their policy’s primary beneficiary. But this isn’t a concrete rule.
You can also name a guardian, or set up a life insurance trust, to hold the money in your children’s name until they reach adulthood. If you set up a trust, you must appoint a trustee to manage it according to your instructions and ensure your children are taken care of until they reach adulthood.
The best time to get life insurance
As for the ideal time to get a life insurance policy, it’s a personal question. As a parent, you want to do everything in your power to protect your family. Life insurance tends to be more affordable when you’re younger and healthier, so it’s a good idea to sign up soon, and lock in a cheaper premium.
Your financial responsibilities change when you become a parent, so having the right coverage is essential. Here are a few things that are important for you to remember as a new parent when considering life insurance:
The sooner you buy, the cheaper it might be
The cost of life insurance tends to go up as you get older. Purchasing now while the rates are reasonably low can help you save money. You should consider getting covered even before you discuss having a baby with your partner to search for the lowest insurance rates possible.
Consider applying during the first trimester of your pregnancy in advance of any possible health complications later on
While we hope this will never happen to you, health complications (like high blood pressure or gestational diabetes) that come toward the end of the first and second trimesters can make coverage more expensive, or disqualify you altogether.
And in the unlikely event that something goes wrong (including complications during labor), getting life insurance coverage sooner in your pregnancy is a sound idea.
Your life is about to get a whole lot busier
Life becomes a blur of bottles, stroller naps, and snuggles pretty fast once your baby is born. If you take care of life insurance early on, you’ll have fewer distractions. Wait until your new family member arrives and this vital task might slip through the cracks.
Which kind of life insurance should I get?
Now that you are leaning toward buying some sort of life insurance policy, finding the coverage you need can feel daunting. Although there are numerous types of life insurance products in the market, the two most common types of coverage you probably heard of are are term life and whole life insurance.
Note: Lemonade only offers term life insurance policies, but we’ll give you the lowdown on both policies to help you decide which kind of life insurance will help secure the financial future of your loved ones.
Term life insurance vs. whole life insurance (aka permanent life insurance)
A term life insurance policy only covers a certain number of years. Depending on your insurance needs, you can choose a 10-, 20-, or 30-year term. If you die before the end of your term, your beneficiaries will receive your death benefit.
Term life insurance might be a tempting option for expecting parents due to its reasonable premiums and flexibility. It allows you to financially protect your child(ren) till they become independent. Medical exams are required by some insurers, but not by Lemonade.
With whole or “permanent” life insurance, you don’t have to limit your coverage to 30 years. Permanent life insurance remains in force as long as you continue to make payments.
Children who depend financially on their parents can benefit from that protection. For instance, a permanent life insurance plan can meet your child’s needs for the rest of their life if they have a disability.
Do both parents need life insurance, or just one?
Your young family would potentially be in a difficult financial situation if either parent were to pass away. So it could be a good idea to consider policies for both parents, whether you’re working for a salary, or working as a stay-at-home mom or dad.
It would be difficult for a surviving parent to replace the valuable services a stay-at-home parent provides, such as child care. Additionally, a life insurance payout could allow the surviving breadwinner to take a few years off work while the family regains its footing.
Typically, you name a beneficiary when you purchase a life insurance policy, such as your spouse. Even if you intend to use the money to help your children, it can get a bit complicated to name them. Life insurance companies cannot pay a beneficiary’s benefit if they are minors when you die until the court appoints a guardian.
An alternative is to create a life insurance trust and name it as the beneficiary of your children’s money and property. The trustee is someone you choose, such as your spouse or another adult. You can set up a trust with the help of an attorney, and the life insurance company can help you create a beneficiary designation in the trust.
How much life insurance do new parents need?
One purpose of life insurance benefits is to help replace any income you would have provided for your family if you hadn’t died. Expecting parents may need more life insurance than parents with older children, because they will have more expenses. By some estimates, the average cost of raising a child until the age of 18 in the US is over $284,000.
One common refrain is that you should buy coverage equal to at least 10 to 15 times your annual income. If you are looking at plans and trying to figure out how much you need, here are some things to consider (while keeping in mind any savings you might have in the bank at the moment):
- Financial contributions (i.e., your salary)
- Mortgage and or rent costs
- Childcare expenses (daycare tuition, etc.)
- Other childrearing expenses (camp fees, art classes, and other extracurricular expenses).
- Family expenses or bills
- Death taxes and funeral expenses
- Long-term care expenses
After making those personal calculations, you want to ensure that your policy’s death benefit provides sufficient coverage to your beneficiaries. At Lemonade, our term life coverage ranges between $50,000 to $1,500,000 (meaning this is the amount your beneficiaries may receive in the event of a covered claim).
How are life insurance premiums calculated?
A life insurance policy’s annual price depends on the type of policy you buy, the company from which you purchase it, the amount of coverage, and the policy’s term. The price can also be affected by some of the following factors:
- Age: The younger you are, the lower the rates likely are
- Sex: Women generally pay less than men do
- Health: If you are in good health and don’t smoke, you’ll probably pay less.
- Lifestyle: If you have a risky career or engage in dangerous hobbies (like climbing Everest a few times a year) your rates will likely be considerably higher
Signing up for a life insurance policy as a new parent with Lemonade
Signing up for a life insurance policy is very simple at Lemonade. You can even apply from your couch, between episodes of Bluey.
We understand how busy you are. You barely have time to sneak a shower, let alone think about complicated insurance policies! Thankfully, our term life insurance offering is 100% digital. There is no paperwork or medical exam required to receive a quote.
Our friendly chatbot, Maya will ask you a few questions about your health and lifestyle, and then we’ll review your information. If you are approved, you will receive a quote and be able to set up your insurance plan.
Click below to get started now—you’ll be moving one step closer to helping protect your family against life’s twists and turns.