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Best life insurance for new parents
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Few experiences for a family are as meaningful as the birth of a child. If you are a new parent, you know there are both joys and challenges in caring for a new life. Your responsibility to your child means many things—from midnight feedings to seemingly endless diaper changes—but one of your most important charges is to ensure that your child is financially protected from hardship. To ensure this, many families consider life insurance a crucial tool. A robust life insurance policy can give you peace of mind knowing that your young one will be protected if the worst happens. Bankrate's resources can help you make the right decision for a policy for your growing family.
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Whole life insurance combines life insurance with an investment component.
- Coverage for life
- Tax-deferred savings benefit if premiums are paid
- 3 variations of permanent insurance: whole life, universal life and variable life include investment component
Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time.
- Fixed premium over term
- No savings benefits
- Outliving policy or policy cancellation results in no money back
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This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. HomeInsurance.com LLC services are only available in states where it is licensed and insurance coverage through HomeInsurance.com may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
Why new parents should get life insurance
Life insurance offers several benefits to new parents. Possibly the most important one is the payout that your beneficiary or beneficiaries would be eligible for if you were to pass away. This money will be available with no strings attached: it can be used to pay down a mortgage, pay for college tuition or meet any other financial needs. This death benefit is usually tax-free and, in most cases, allows your heirs to avoid probate so they have access to the funds when they are most needed.
If you choose to purchase permanent life insurance, there may be other benefits. These types of policies have, in addition to a death benefit, a cash value that may be a good savings option for you as part of a strategic financial plan.
What type of life insurance is recommended for new parents?
There are two main types of life insurance for new parents — term and permanent life insurance. Each type has potential pros and cons for new parents. Doing research may help you find the best type of life insurance for your individual needs.
Term life insurance
Term life insurance is coverage that exists for a specified term limit and will provide a death benefit to the beneficiary if the named insured dies during that term. Term life insurance is a popular choice among new parents because it can be purchased for a set number of years (typically between 10 to 30 years) to cover the length of time it takes to reach certain milestones, such as paying off a mortgage or a child graduating high school or college.
Term life insurance is typically much cheaper than permanent life insurance. The downside is that once the term runs out, you will no longer have any life insurance unless you choose to renew the term coverage or convert the policy to permanent coverage, both of which can be costly. There are several instances when term life insurance policies might benefit new parents.
When a term life policy might be a good option for you:
- You know you only want coverage for a set period of time. If you know you won’t need life insurance coverage after you pay off your mortgage or send your kids to college, then term life insurance may make sense for you.
- You're a young and healthy new parent: Most term policies offer fixed premiums, meaning the insurer won’t change your rate once the policy is in force. Because life insurance is cheaper the younger and healthier you are, purchasing a policy at a younger age allows you to lock in a good rate and possibly save you money in the long run.
- You're on a budget: Because the cost of term life insurance is generally cheaper than other types of coverage, your premiums may fit your budget better if you are pinching pennies. Inexpensive term policies are available from a range of insurers, and shopping around for the best price is one key way to find the most affordable rate for your coverage.
Permanent life insurance
Permanent life insurance refers to a range of policy types that have a few things in common. The most common types of permanent insurance include whole life, universal life and guaranteed universal life. Permanent policies, like term insurance, have a death benefit, but they also feature a cash value that consists of a portion of your premium that is placed in an interest-bearing account. In many cases, this cash value can be borrowed against if necessary, although the amount must be paid back to avoid impacting the death benefit. As the name suggests, permanent life insurance is intended to remain in force for the life of the insured as long as premiums are paid.
Whole life insurance may be a good option if:
- You want coverage for your entire life. If you think you will need life insurance longer than a specified term, it may be best to lock in your premium rate before you get older or develop any health conditions that could make your premium more expensive.
- You're interested in a more complex policy that provides additional benefits. If you want a life insurance policy with a cash value component you could use to further your financial goals, permanent life insurance may be best for you.
- You are the primary source of income for your family. If you plan to be the long-term primary source of income for your family, you might consider permanent life insurance to provide financial stability for your spouse if you pass away before them.
Universal life insurance may be a good option if:
- You want increased flexibility. Sometimes called adjustable life insurance, universal life allows policyholders to make adjustments to their coverage, such as increasing the death benefit or changing the amount they pay for the policy.
- You have a financial plan in place. Universal life can play a primary role in any financial plan that includes tax savings options and opportunities to invest. With universal life, you can make changes to the plan as you age so that it continues to provide the right mix of benefits for your portfolio.
- You are interested in investments with a higher level of risk. There are several types of universal life, and one of the differences between them is how the cash value is invested. An indexed universal life policy, for example, ties the saving portion of your account to a market index, with the potential for increased growth—along with a higher risk level.
Guaranteed universal life insurance may be a good option if:
- You want a permanent policy at a lower cost. Guaranteed universal life (GUL) is one of the most budget-friendly types of permanent insurance.
- You are risk-averse. Guaranteed universal life features a fixed premium, and you will pay the same amount throughout the life of the policy. Your premium won't fluctuate with the stock market, and the risk of losses is minimized.
- You are not interested in a high cash value. The primary benefit of a GUL policy is that it can provide permanent coverage for those who aren’t comfortable with the high cost of whole life insurance. The cash value growth in GUL policies is minimal.
Bankrate insights
Many life insurance companies offer a child rider on both term and permanent policies. This rider pays out a death benefit if the worst should occur and a child passes away. A life insurance child rider typically provides $10,000 of coverage on any dependent child under age 18. Any children born after you buy the rider are also eligible for coverage under the same rider with no increase in cost. This rider can also provide guaranteed future insurability once your children become adults. With a low price tag of generally $50 annually, this rider is something new parents may want to consider.
Best life insurance companies for new parents
When you are ready to purchase a policy, you’ll likely be on the hunt for the right life insurance company for you and your family. Most life insurance companies will offer you similar premiums for the same policy type, so analyzing factors such as customer reviews, policies offered and consumer ratings may help you determine which are the best life insurance companies for you. Here are a few national providers that we think may be worth considering based on our analysis of customer satisfaction, coverage types, financial strength and digital tools.
| Company | Best for... | Life insurance policy highlights |
|---|---|---|
| MassMutual | Whole life insurance |
Highest possible AM Best financial strength rating
Offers seven rider options for its whole life insurance product |
| State Farm | Term life insurance |
Highly rated customer service, according to J.D. Power
Also offers home and auto insurance |
| Guardian | Policy customization |
Highest-possible AM Best financial strength rating
Wide variety of policy types and terms |
MassMutual is our 2024 Bankrate Award winner for best whole life insurance company. The carrier scored highly in the 2023 U.S. Individual Life Insurance Study, which indicates customers are generally happy with the level of service. MassMutual's policies are also highly customizable with a long list of potential riders, including waiver of premium, accelerated death benefit and guaranteed insurability. MassMutual has a robust mobile app, which may appeal to customers who prefer to manage their policy digitally, but it does not offer online quotes.
State Farm is our 2024 Bankrate Award winner for best term life insurance, which may appeal to new parents seeking coverage until their children are financially independent. The carrier also offers permanent life insurance options. State Farm earned the highest score in J.D. Power’s Life Insurance Study, so it may be a good option for shoppers who value service. The company offers a few riders for term and permanent life, including waiver of premium and a children's life insurance benefit rider.
Offering term, whole and universal life insurance policies, Guardian also holds the highest possible AM Best rating for financial strength of A++ (Superior). Licensed to sell policies in all 50 states and Washington, D.C., Guardian scored well above average with J.D. Power for customer satisfaction. The carrier offers an extensive list of riders for its policyholders to choose from, including a waiver of premium rider and a guaranteed renewability clause. However, the carrier does not have a mobile app and does not offer auto or home insurance, so it may not be the best option for customers who value digital tools or prefer to bundle all their insurance needs with a single company.
How much life insurance for new parents need?
Life insurance may help ensure your spouse or dependents are financially secure in the event you pass away. Although you will likely want to calculate how much coverage you need based on your unique circumstances, the purpose of the payout is generally to cover anything from your mortgage payments to future education expenses for your child. However, life insurance can also cover regular expenses, dependent care, domestic work, funeral costs and unresolved debt.
In most cases, the younger and healthier you are, the more affordable your life insurance will be — which is why most experts recommend you buy life insurance when you're young if you want a policy in place and can afford to do so. Experts also suggest that you purchase coverage for both parents, even if one is a stay-at-home parent. According to a survey by salary.com, the value of a stay-at-home parent's work is $178,201 annually—if that person wasn't there, you would likely need to hire help to manage your household.
When choosing life insurance policies and coverage amounts, it may help to consider factors such as:
- How heavily your everyday expenses rely on your salary: Are you the sole or primary provider in your family? If so, you may want to take out a life insurance policy that can provide for your family for the long term. If you primarily perform domestic tasks, you may want to take out a life insurance policy that can help pay for the costs of childcare and household management tasks.
- Your debts: Do you have a mortgage, loans or any other debts looming? If so, you may want to take out a life insurance policy that could pay off these debts so they do not become the responsibility of your spouse or children.
- Long-term expenses for your child: Planning for your children’s future likely includes factoring in large financial expenditures such as college tuition, braces, weddings and more. Life insurance may help ensure these items are paid for even after your death.
- Your end-of-life planning: Funerals can be surprisingly expensive. Life insurance may be one strategy to ensure your end-of-life arrangements are paid for before you pass away. You might even consider final expense insurance.
- The rule of 10: One common way to estimate how much life insurance you need is to multiply your household's annual salary by 10. This can be a good benchmark to start with, but the number may not be right for everyone, and you should generally consider other factors as well. It may be a good idea to work with a certified financial planner or licensed life insurance agent who can help you determine the appropriate coverage amount.