Life Insurance Basics for New Parents

January 18, 2005
Last year, there were over 4 million babies born across the United States, and by 2017 the birth rate is projected to reach 4.5 million, a rise of more than 12 percent. As a result, an increasing number of parents will face a host of important decisions that come with the responsibility of caring for a family, including how they will provide for their loved ones if something should happen to them.

Gather Information
New parents should evaluate their existing life insurance policies to determine whether they offer suitable types of protection at competitive rates, the appropriate amount of coverage and the correct beneficiary designations. Regularly reviewing this information can reduce the cost of life insurance for families. For instance, term life insurance rates can vary considerably over time and it may be worthwhile for parents to get new quotes for their current policies, as rates have declined steadily since 1996.

After assessing their additional insurance needs, parents can begin researching and comparison-shopping online or through an insurance representative. Those seeking information online can go to Insurance.com to get quotes, compare providers, learn about the different types of coverage available, and request an application to purchase a policy from a variety of providers.

Determine Coverage
Life insurance policies can vary significantly in exactly what is covered, and how much is covered. When reviewing their policies, parents should consider:
Type of Coverage - Term life insurance policies provide protection for a specific period of time and generally provide life insurance only, with no accumulating cash value. In contrast, permanent policies can provide protection for an individual's entire life as long as adequate premiums are paid, and generally allow owners to accumulate cash value over the long term. New parents should keep in mind that the cost and availability of life insurance is influenced by a person's health, age and type of coverage requested.
Amount of Coverage - Whether it is a single or dual-income family, both parents should always carry enough life insurance to guarantee that one of them would be in a position to carry on financially in the event that something happened to the other. Even a stay-at-home parent not earning an outside income should be insured to make it possible for the family to cover expenses, such as additional childcare costs.

Designating a Beneficiary
New parents should update their beneficiary designations after the birth of a child, or the people who are named to receive the benefit of their life insurance policies. Beneficiaries should be chosen carefully, since changing the designation to another person later can be difficult. Both a primary and a contingent beneficiary should be named to ensure funds would be available immediately to the family, rather than flowing to the estate, which could result in delays and additional expenses.

In preparing for the birth of a new baby, parents may spend hours painting the nursery and searching for just the right name. Along with those activities, they should consider their life insurance needs as the due date approaches. Having children can be overwhelming at times, but knowing that their family is financially protected can bring parents peace of mind as they celebrate their new arrival.

*The VARDS [Variable Annuity and Research Data Service] Report, Marietta, GA as of 12/31/2001.