How to Choose a Life Insurance Policy When You’re Expecting a Baby
When a baby is on the way, there’s a lot to think about. Your to-do list might look something like this:
- Stock up on diapers.
- Set up the crib.
- Make sure you have baby-bathing supplies on hand like a baby tub for the sink, baby soap and baby shampoo.
You might also want to add another item to your list:
- Buy a life insurance policy for the baby.
Should You Insure a Baby?
There are some who say the only time you need a life insurance policy is to make sure that your dependents will be financially protected in the event of a death, and that buying life insurance for a baby is wasteful spending. But there’s a case to be built for getting coverage for you child.
For families who are low- or middle-income, life insurance could pay for funeral costs and time off of work. If you decide to buy such a policy, you’re then faced with a second question: which kind of insurance, whole or term, is best for your needs?
What Kind of Life Insurance Do You Need?
Your choices for life insurance types are whole-life for permanent coverage or a term policy that you purchase for a set number of years.
Whole life insurance coverage is usually about $25,000 to $150,000:
- Covers your child for his or her entire life.
- Has a premium that never increases in cost.
- Premiums are more expensive than term.
- Offers your child a guaranteed cash value that can be borrowed against.
- The policy can’t ever be cashed out for its full value.
Term life insurance provides coverage between $25,000 to $150,000:
- Plans typically provide between 5 and 30 years of coverage.
- When the policy term ends, the policy owner is no longer covered.
- Premiums are low but will increase as the child ages.
- With term, you can buy a policy that fits your own timeline and budget.
How Much Coverage Should You Buy for Your Baby?
A general rule of thumb, no matter which kind of coverage you purchase, is to only get what you can afford. If you can afford higher premiums, whole-life insurance might be a good option. If you purchase term insurance, you don’t need to buy more coverage than will pay for funeral costs and wages lost for time off. An insurance professional can help you sort through your options and which best apply to your situation.
Start looking at policies and comparing costs even before the baby arrives so you’ll be prepared to protect your family.