Best Life Insurance For New Parents | Ultimate Guide October 2023
Are you a new parent looking for information about the best life insurance?
Great! Then you have come to the right place.
The article will provide your everything you need to know and answers to all your life insurance questions such as: How much you need? What type of policy to get- term life or whole life? How long do you need it for? How to get the best rates? Who are the best life insurance companies and everything else you need to know to make the best decision to secure the right life insurance to protect your growing family.
Best Life Insurance For New Parents- Protecting Your Growing Family
Congratulations! If you are reading this you likely just had or about to have your first, second or third child. The reality sets in that you need to protect this growing family with life insurance.
Many new parents were so overwhelmed during their first pregnancy and with having a baby, the thought of life insurance often didn’t enter their mind or have time to think about it until after child number two or even child number three. That is why we wrote this article, to be a guide for new parents to assist them how to navigate the life insurance buying process and to make it simple and easy as possible.
Table of contents
Millennials & Generation X Are Now Having Their Second And Third Child
The oldest Millennials are turning 40 (born in 1981) and are having or had their first, second child or third + child. Preceding this is Generation X which are those born from 1965-1980 and many born in the 70’s are in the same situation. Even Generation Z is now starting to have families of their own. That is why this topic is so important and we wanted to address it.
While it’s not a pleasant topic to think about, the reality is most new parents do wonder how their children and spouse would be able to survive on their own if you were to die unexpectedly. Your income would be instantly gone and your family would be left to fend for themselves.
Why Life Insurance?
Life insurance is there to provide instant cash and peace of mind knowing that if anything were to happen to you, your family will be able to carry on and have the same lifestyle that you would have been able to provide if you were still alive. A home, food, clothing, education, medical expenses, daily living expenses and everything else your income would have afforded them for the next ten, twenty or thirty years if you were still alive. Life insurance can also can create a lasting legacy from you to your family.
A policy of life insurance is the cheapest and safest mode of making a certain provision for one’s family.
Benjamin Franklin
Now that you know you need it, lets go over common questions and provide the answers.
How Much Life Insurance Do You Need?
The first part of the equation with life insurance is determining how much coverage you need. Financial advisors such as: Dave Ramsey, Suze Orman and Clark Howard typically recommend between 5x to 20x your gross annual income, with the average being 10x your annual gross income in life insurance coverage.
By using this rule of thumb, you are replacing your income for those number of years.
Life Insurance Calculators
To be of better assistance, you can use our instant income replacement calculator which can provide and instant income replacement summary or for a more in depth life insurance needs calculator you can use the Life Happens calculator which asks 7 questions to assist you in choosing the coverage amount.
Also, having a quick conversion over the phone with an experienced agent/broker can be a great resource as well.
FAQ– Life insurance proceeds are income tax free. The life insurance death benefit is one of the few items in America that are not taxed.
Case Study #1
A husband is 35-years old and has a gross (before taxes) annual income of $100k a year. His wife makes $100k a year in her job as well. If they follow the 10x your annual income in life insurance rule of thumb, they both would get a $1 million policy.
Using the example above, while a million policy is a lot of money, if the couple has a mortgage for, say $500k with 28 years left and two small children and they want to help pay for their future education, a $1 million policy may not be enough.
Case Study #2
A couple in their 50’s or 60’s with grown children are at a different stage of life and typically do not need as much life insurance as a younger couple with dependent children, a mortgage and many years of income replacement that would be needed if either one passed away unexpectedly. This couple may only need 5x annual income replacement or just enough to cover any outstanding debts such as the mortgage.
How Long Do You Need It For?
The second part of the equation when purchasing life insurance is to determine the duration or length of the policy. We will explain in more detail later the difference between term life and whole life, but for now let’s concentrate on term life insurance since it is the most popular type of coverage for younger parents since term life insurance allows you to have the most amount of coverage at the lowest price.
Most life insurance companies offer term lengths for either: 10 years, 15, years, 20 years, 25, years, 30 years. There are several top companies that now offer a 35 year level term and even two top insurers that even offer a 40 year level term.
The most common term lengths after a second child or third child is either a 20, 25 or 30 year level (fixed) term.
FAQ– Level term simply means the premiums and coverage amount are fixed for the term you select. The premiums will not change during the term, regardless of age or health. (You can still cancel the policy on your end without a penalty at anytime.)
20 Year Level Term
The reason why many parents with a new baby choose a 20 year term is due to the fact that it will get that youngest child until they are an adult before the term expires. Another reason why the 20-year term is so popular is cost. The premiums for a 20 year term are less than a 30 year, 35 or 40 year term.
30 Year Level Term
A 30 year term, will lock in the rate until the youngest child is out of college or grad school and will protect the spouse until retirement age or close to it. Also, if you have a mortgage, it will protect the family until the mortgage is paid off.
35 & 40 Year Level Term
For young couples, sometimes they even prefer a 35 year or 40 year term to achieve these objectives.
The longer the term, the higher the premium. That is why it comes down to your budget and how much you want to spend each month/year and your need when choosing the term length. While everyone wants a million policy for the rest of their life, you also have to take into consideration how much you want to spend and be realistic about your budget. Most people don’t want to allocate a significant portion of your monthly budget to life insurance.
FAQ– The longer the term the higher the premium.
How Much Will It Cost?
Let’s take a look at the life insurance rates by age chart for new parents for a 20 year term.
Male- 20 Year Term
| Age | $500k | $750k | $1 million | $2 million | $3 million | $4 million |
|---|---|---|---|---|---|---|
| 25 | $19 | $25 | $30 | $55 | $80 | $104 |
| 30 | $19 | $25 | $31 | $56 | $81 | $105 |
| 35 | $21 | $28 | $34 | $61 | $87 | $114 |
| 40 | $27 | $37 | $47 | $88 | $128 | $169 |
| 45 | $46 | $67 | $87 | $169 | $251 | $332 |
| 50 | $71 | $104 | $133 | $262 | $390 | $518 |
Female- 20 Year Term
| Age | $500k | $750k | $1 million | $2 million | $3 million | $4 million |
|---|---|---|---|---|---|---|
| 25 | $15 | $21 | $23 | $40 | $57 | $73 |
| 30 | $16 | $21 | $24 | $43 | $61 | $79 |
| 35 | $17 | $23 | $28 | $53 | $77 | $100 |
| 40 | $24 | $32 | $41 | $75 | $112 | $147 |
| 45 | $37 | $52 | $67 | $129 | $190 | $251 |
| 50 | $55 | $80 | $96 | $187 | $278 | $368 |
*These rates are for a male and female in excellent health on a 20-year level term.
Let’s take a look at the life insurance rates by age chart for new parents for a 30 year term.
Male- 30 Year Term
| Age | $250k | $500k | $750k | $1 million | $3 million | $5 million |
|---|---|---|---|---|---|---|
| 25 | $17 | $28 | $39 | $47 | $130 | $214 |
| 30 | $18 | $29 | $42 | $52 | $146 | $240 |
| 35 | $21 | $34 | $49 | $63 | $180 | $295 |
| 40 | $28 | $50 | $73 | $93 | $270 | $445 |
| 45 | $42 | $79 | $115 | $150 | $439 | $729 |
| 50 | $68 | $127 | $189 | $245 | $729 | $1,203 |
Female- 30 Year Term
| Age | $250k | $500k | $750k | $1 million | $3 million | $5 million |
|---|---|---|---|---|---|---|
| 25 | $14 | $22 | $31 | $38 | $103 | $168 |
| 30 | $15 | $25 | $35 | $43 | $119 | $196 |
| 35 | $18 | $29 | $41 | $51 | $142 | $233 |
| 40 | $22 | $40 | $57 | $74 | $211 | $348 |
| 45 | $33 | $60 | $88 | $115 | $335 | $555 |
| 50 | $51 | $95 | $140 | $179 | $527 | $875 |
*All rates for a male and female in excellent health at the preferred plus health class.
Term Life or Whole Life?
One of the most common questions people have when purchasing life insurance is if they should get term life or whole life insurance.
Term life insurance provides coverage at a fixed price for a fixed period of time. It is very straightforward. You pay your premiums and if you pass away during the term, it pays out the money. There is no cash value.
Term insurance is similar to auto insurance, health insurance, home insurance, etc. It protects you while you have it. It is also known as pure life insurance.
Whole life insurance or permanent insurance provides coverage for the rest of your life and often has a cash value. It typically allows you do borrow against the cash value at a certain interest rate.
Whole Life Insurance Rates
Let’s take a look at the sample permanent life insurance rates.
| Age | Male $500k | Female $500k | Male $1 million | Female $1 million |
|---|---|---|---|---|
| 30 | $171 | $148 | $315 | $268 |
| 40 | $265 | $231 | $500 | $427 |
| 50 | $409 | $350 | $777 | $688 |
*The rates above are for male and female in excellent health. Also, the rates are for a guaranteed universal life to age 121. For a traditional whole life policy with a cash value the premiums will be higher.
Permanent Life Insurance Rate Calculator
Which Is Better?
Choosing a term or permanent life insurance policy is an individual decision based on your needs and goals.
As mentioned earlier, many top financial experts such as Dave Ramsey and Suze Orman recommend the buy term life and invest the difference, especially for younger families looking for maximum protection. Buy purchasing term life, you will typically spend 5x to 15x less per month. You can use that savings to pay off a mortgage quicker, max out your 401k, place it in other investment vehicles, put it toward your children’s 529 plan etc. This way the money is yours and not tied up in a life insurance policy.
Does A Stay-At-Home Parent Need Life Insurance?
Yes! While a stay-at-home parent does not receive monetary compensation for their hard work, their contribution to the household and family is often vastly underestimated.
If a stay-at-home parent were to pass away, the living spouse would now have to pay for final expenses as well as pay for child care and replace the stay-at-home parents contributions to the household. Also, many times a surviving spouse will need to take off from work to grieve with the family.
Also, by insuring the stay-at-home parent now, it protects future insubibility in case their health changes down the road. If the stay-at-home parent plans on going back into the workforce in a few years, their life insurance policy is already locked in at their age and health as of today. If their health changes in the future, it will not affect their current policy.
A policy on the homemaker often very inexpensive. A $100k, $250k or $500k 20 year term can have very low premiums as seen in the rate tables above.
Will I Need A Health Exam?
Many top carriers now offer no-exam life insurance and accelerated underwriting. It will depend on several factors if you qualify such as your age, last time you went to the physician and had a full check up, the amount of life insurance you are applying for, etc.
In fact, the majority of the rates quoted in the term life insurance tables above for $1 million or under were were with insurers with the no-exam or accelerated underwriting program.
Also, if you do have to do the paramed, it is very quick and easy. It typically only takes 20-30 minutes at your location and it’s no cost. You also get a copy of the results, so many people look as it as a free check-up.
Are There Any Exclusions?
With term and whole life insurance there are typically only two exclusions. First is suicide. If you commit suicide in the first two years of the policy it will not pay out the death benefit.
The second exclusion is the two-year contestability clause. This means if you lied on your application and die in the first two years the insurance company can contest it and not pay out. That is why you want to be honest on your application.
Is There A Waiting Period?
No, for term and traditional permanent life insurance (universal and whole life, just not graded death benefit final expense insurance) you are covered from day one for both natural causes and accidents. Even if you make one payment and die, the full policy will pay out.
Is There A Plenty To Cancel A Term Life Policy Early?
No, term life insurance is pay as you go. The insurance will lock in the rate for you term you select but you can cancel anytime without a penalty.
What Ratings Do I Look At When Buying Life Insurance?
When looking to purchase life insurance you want to look at the insurers A.M. Best rating. A.M. Best is the preeminent life insurance rating agency. A good rule of thumb is to only choose a life insurance company that has an Excellent of Superior rating from A.M. Best.
How Do I Get The Best Rates?
It’s very important to compare rates from multiple life insurance companies before purchasing a policy. The rates can vary as much as 50% for the same policy from one company compared to another.
Who Are The Best Life Insurance Companies For New Parents?
The best life insurance companies are those that received an A (Excellent) or A+ (Superior) from A.M. Best. Since the life insurance industry is so highly regulated, as long as you are honest on your application and don’t commit suicide in the first two years, your policy will pay out.
This is why life insurance is one of the few products you can shop for based on price.
To list a few of the top life insurance we trust to place our clients due to: their low rates, high financial rating and excellent underwriting are: Pacific Life, Banner Life, Protective Life, AIG, SBLI, Lincoln National (Lincoln Financial), Penn Mutual.
Underwriting & Life Insurance
Each life insurance has their own underwriting guidelines. Each company has their own build chart (height/weight chart), as well as have their own guidelines for: blood pressure and cholesterol, medications, your medical history, family history and even your driving record. That’s why it’s important to compare rates from multiple companies to ensure you are receiving the best rate.
Use A Life Insurance Quote Engine
To compare rates from the top companies without speaking to anyone first, you can use a quoter like the one on our site to see the rates from the top carriers instantly based on your age, health, coverage amount and term.
Call Each Company Yourself To Receive Quotes
Some people will call each company separately to receive quotes. This is probably the least efficient and most time consuming way to compare rates.
Use An Independent Agent Or Broker
The majority of people today choose to use an independent agent or broker since they can save you time and money by doing the shopping process for you. A good agent will also know the underwriting guidelines to help you get the best rate and to choose the right company.
Also, there is no charge to use an independent agent/broker. The same price you receive an independent agent/broker is the same price that you receive if you go to the company directly. The insurance agent gets paid by the insurance company for bringing them the business. They are also your advocate with the insurance company and underwriter. That is why it is the preferred method for so many.
Bottom Line
If you are expecting your first, second or third child or recently just had a baby, you need life insurance or likely need to increase the amount of coverage you currently have to adequately protect your family.
If you were to suddenly pass away, your family would lose or income immediately. Your current and future earnings would be gone forever. If you are a homemaker, the loss would equally as devastating. This is where life insurance comes in. It allows you to replace your current and future income for pennies on the dollar. It creates instant cash where none existed before.
Life insurance also provides peace of mind knowing that your family is protected if anything were to unexpectedly happens to you.
There is a saying that life insurance is the most selfless thing your will ever purchase. It is the last love letter to your family, what will yours say?
Keep Reading
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