| ||||||||||||
Expectant parents spend months safeguarding their home before the baby arrives — shopping for car seats, installing safety gates, and putting locks on kitchen drawers. But many overlook one of the most important protection products that exist for young families: life insurance.
Life insurance is a pivotal part of any financial planning toolkit, helping to ensure that your loved ones would be provided for in the event that you should pass away prematurely.
Obtaining life insurance coverage while pregnant is not only possible, but also practical, said Greg Olsen, a CFP™ professional and partner with Lenox Advisors in New York.
“A lot of people think they should wait until they have the baby, but in reality, your liability risk begins the moment of conception,” he said, noting that both parents should consider coverage. “Technically, the parent who is not pregnant could die the next day and that child will still come into the world and need financial support.”
If you are currently pregnant and applying for a life insurance policy, your costs and coverage may be determined by your health and how far along you are in the pregnancy. Here’s a closer look at what to expect.
The first trimester
Getting life insurance coverage during the first trimester is pretty straightforward.
“During the early stages of pregnancy, insurers will likely treat the application similarly to any other application — if there are no complications or health issues,” said Alison Salka, senior vice president for industry trade group Limra. “The insurance company may also consider your pre-pregnancy weight when evaluating your application, which can be beneficial for the premium rates.”
Note that it is important to inform the insurance company that you are pregnant when you apply for coverage. Failure to do so could give the insurer cause to deny your beneficiary a death benefit if you should pass away unexpectedly.
The second and third trimester
As the pregnancy progresses into the second and third trimesters, getting life insurance can become more difficult, especially if you develop health conditions, such as gestational diabetes or high blood pressure.
“Insurers might view later stages of pregnancy with increased scrutiny due to the higher risk of complications,” said Salka. “This does not mean that you can’t get life insurance during this time, but the process may involve more questions about your health and the pregnancy. Depending on the insurer and the specifics of your situation, there may also be higher premiums or exclusions related to pregnancy complications.”
In some cases, if there are significant health concerns or complications associated with the pregnancy, an insurer may decide to delay the application process until after the baby is born, she said.
The best time to get insurance for young families
According to Olsen, the best time for most young families to purchase life insurance is before they even get pregnant. That’s especially true for couples with shared financial responsibilities, such as a mortgage, co-signed student loans, or car payments, he said. In the event that the insured should pass away prematurely, the life insurance death benefit could help the surviving spouse pay off those expenses and maintain their standard of living.The next best time to secure coverage is immediately after they learn they are pregnant, when premiums may be most affordable, said Olsen.
“Normally, we try to be proactive and say ‘please don’t wait,’” he said, noting that both parents should consider coverage even if one expects to quit working after their baby arrives.
Why? A stay-at-home parent typically needs coverage so that, if he or she dies, the surviving spouse can continue to work and protect their earnings potential while paying for services to keep the household afloat.
That includes:
- Child care.
- Housecleaning.
- Tutors as needed.
- Potentially more prepared meals on busy weeknights.
A life insurance death benefit may also provide the surviving spouse financial flexibility to find a job or career with better work-life balance, so they could be more present for their child. (Related: Why life insurance for stay-at-home moms and dads is so important)
Best type of coverage
As for which type of life insurance is best for young parents, that depends on your resources and financial goals. (Learn more: Life insurance overview)
There are two main types of coverage:
- Term life insurance policies provide coverage for a limited period of time, such as 10 or 20 years. If you die while the policy is in force, your beneficiaries would collect a death benefit as long as you were current with premium payments. If you outlive the term and do not continue the policy, no death benefit is paid out. Term life policies do not accumulate cash value and, because the coverage is only temporary, the premiums are typically far lower than the same amount of coverage might be for a permanent life insurance policy. According to Limra, the premium for a healthy 30-year-old for a 20-year term life insurance policy with $250,000 in coverage will cost less than $200 per year.1
- Permanent life insurance policies — including whole, universal, and variable life insurance — provide coverage for life. If you keep up with your required premium payments, your beneficiaries receive a guaranteed payout, or benefit, whenever you die. Permanent life insurance policies also generally include a cash value component. Depending on the type of policy you select, a certain increase in your cash value can be guaranteed. While the primary purpose of permanent life insurance is to provide a death benefit to your heirs, the cash value you accumulate can potentially be borrowed against for any reason, such as to pay for an emergency expense, to help cover college expenses, or to supplement retirement income.2
James Raiola, a financial professional with Commonwealth Financial Group in West Warwick, Rhode Island, said he often recommends that young adults purchase a term life insurance policy with an option to convert to permanent life coverage later on. Doing so enables them to maximize the coverage they receive today at minimal cost, while preserving the ability to expand their life insurance protection as their income and responsibilities grow.
Securing a convertible term life insurance policy when you are young has another important potential benefit as well. Some enable you to convert to whole life coverage within a certain time frame, say, 10 years, without the need to submit new medical underwriting. That’s a big plus in the event that you develop a health condition in the intervening years that might otherwise render you ineligible for coverage. (Learn more: The case for combining term and perm)
“I have a pretty high percentage of clients who, by age 40, have converted a good portion of their term life insurance policy to a permanent life insurance policy, which often makes sense as your coverage needs change,” said Raiola. “A decade down the road, your economic status may have changed and you may have more children or own a more expensive home, which requires more coverage.”
How much coverage do you need?
A financial professional can help you determine how much coverage your family may need.
For starters, however, you may wish to select a coverage amount that pays off your mortgage, shared expenses, and your child’s future education costs. If your spouse depends on your income, you will also likely want to purchase enough coverage to help replace a portion of your income so that your spouse can maintain their standard of living. Be sure to consider not only your income today, but also your future earnings potential. (Related: How much life insurance should I get?)
Again, non-working spouses should calculate the annual value of their unpaid work to determine how much coverage is sufficient to protect their working spouse. (Calculator: How much life insurance do I need?
For the most accurate and personalized information, it's best to get quotes from several life insurance companies, said Salka. This process typically involves providing details about your health, lifestyle, and coverage needs, and sometimes undergoing a medical exam. (Related: Why an insurer’s financial strength matters)
Finally, parents-to-be may wish to seek professional advice on whether it makes more sense to name their future child as beneficiary of their life insurance policy, or if it might be wise to instead name the baby’s other parent or legal guardian. Be aware that naming your child as beneficiary could potentially make it difficult for the other parent or guardian to provide financial support should you pass away. (Related: Beneficiary designation mistakes)
Conclusion
With a baby on the way, it’s only natural to get caught up in the excitement of choosing names and nursery room décor. But don’t forget to protect your growing family from financial risk along the way.
By securing life insurance coverage early in your pregnancy, you can potentially help to minimize complications in your application and lock in the lowest premiums.
Discover more from MassMutual…
The new parent financial checklist
The logic of life insurance for children
How to ‘ladder’ life insurance with family changes
________________________________________
1 Limra, “2023 Life Insurance Barometer,” April 2023.
2 Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit. It also increases the chance the policy may lapse and could result in a tax liability if the policy terminates before the death of the insured.