New Parents: How to Protect Your Growing Family

Having a child is one of the most profound changes you will ever experience. It is also the moment when life insurance stops being something to think about later and becomes something you need right now. Here is what a new parent needs to know.

Why having a baby changes everything

Before a child, if something happened to you, the financial impact, while devastating emotionally, might be manageable for your partner. After a child, the equation changes. Now there is someone who will depend on your income, your care, and your presence for the next 18 years and beyond.

Life insurance answers one simple question: if I am gone tomorrow, will my family be okay? For new parents, the answer needs to be a clear and immediate yes.

How much coverage do new parents need?

As a new parent, your coverage should account for:

• Income replacement. At least 10 years of your annual income, ideally until your youngest child is financially independent.
• Mortgage payoff. The remaining balance, so your family keeps their home.
• Childcare costs. If the surviving parent needs to hire childcare, that is a significant ongoing expense.
• Education. Around $100,000 to $150,000 per child for college.
• Existing debts. Car loans, student loans, and credit cards.

For most new parents this adds up to somewhere around $500,000 to $1.5 million in coverage, depending on income and lifestyle. These figures are illustrative. To get a more precise number, use the DIME method in our guide on how much life insurance you need.

What type of policy makes sense?

Term Life, the foundation

A 20 to 30 year Term Life policy is the right starting point for most new parents. It covers the years when your child is most financially dependent on you, at the most affordable rates. A healthy 30 year old can often get $1,000,000 of coverage for around $40 to $55 a month. These figures are illustrative and vary by carrier and health.

Whole Life or IUL, the addition

Once you have Term Life in place, consider adding a smaller permanent policy. This builds cash value over time that can help with your child's college education, your own retirement, or emergencies. Some parents also start a small Whole Life policy for a newborn, locking in a low rate while the child is young and healthy.

Do not forget the stay-at-home parent

One of the most common mistakes new parents make is insuring only the breadwinner. If the stay-at-home parent passes away, the surviving working parent may need to pay for childcare and household management, and possibly reduce their work hours, all of which carry real financial costs. Both parents need coverage.

New parent insurance checklist

• Cover both parents, not just the primary earner.
• Update your beneficiaries and add your child as a contingent beneficiary through a trust or guardian.
• Choose a 20 to 30 year term that covers your child through college and beyond.
• Do not name a minor directly. Use a trust, or name a guardian as custodian.
• Tell someone where to find the policy, such as your spouse, a trusted family member, or your estate attorney.

Next steps

Becoming a parent is one of the best reasons there is to get covered. A licensed Eterna agent works with new and expecting parents every day and can help you get protected quickly, affordably, and with no pressure. Not sure on the amount? Start with how much life insurance you need.