Life insurance for new and young parents
Life insurance provides financial protection to yourself and your family in the event of a tragedy. Many new and young parents begin to explore life insurance options because of their new roles as parents and the financial responsibility and impact that puts on themselves and their children. Common options for parents include term life insurance, whole life insurance, and joint life insurance. However, there is no one-size-fits-all approach to life insurance for any family, and will depend on your family’s specific financial needs.
If you’re a new or young parent, death may be the last thing you want to think about. But choosing the right life insurance policy can protect your family in case an unfortunate circumstance occurs.
This article discusses items to ponder for new and young parents purchasing life insurance and includes three types of life insurance policies to consider.
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Why is life insurance important for young parents?
Life insurance provides peace of mind. By purchasing life insurance, you know your family is financially protected if you or your partner passes away. The death benefit from a policy can compensate for lost income, pay down debts, and cover funeral or other expenses.
If you or your partner is a stay-at-home parent, it’s still important to purchase life insurance. The loss of a stay-at-home parent likely means additional child care costs, which can amount to thousands of dollars per month depending on where you live. Although life insurance can’t replace the emotional loss of losing someone, it can cushion the financial hardships.
And remember, if you have not had your child yet and are still expecting, you can get life insurance while pregnant.
What’s the best life insurance policy for parents?
Many life insurance policies are available to new and young parents. The policy that’s best for you depends on your particular circumstance. No policy is a perfect fit for every new or young parent, but popular options include term life insurance, whole life insurance, and joint life insurance.
This article goes into detail about each below. Our insurance reviews also offer insight into which companies offer the best insurance policy for young parents. And lastly, parents can take advantage of insurance riders in their policy to augment their coverage and protect their children and partner as well.
Term life insurance
Term life insurance is often the best life insurance for young parents. This type of policy covers a specified term (such as 10 or 20 years) for a specified coverage amount. The insurance company considers factors such as your age, health, habits, and hobbies to calculate the premiums.
The coverage amount is paid to your beneficiary when you die as long as you’re still within the specified term and have kept up with the premiums.
Young parents commonly choose term life insurance because it can remain active until your death doesn’t cause significant financial consequences for your family. This may be after you’ve paid off your mortgage and other financial obligations and your children are financially independent.
You should have enough coverage to pay off outstanding debts and fund goals, such as sending your kids to college or university.
Term life insurance is also affordable to young parents. The chances of you dying when you’re young are significantly less. As a result, there’s a lower risk to the insurance company, and they can thus charge you a lower premium. Ultimately, this allows you to create a strong safety net for your family at a low cost.
Whole life insurance
Whole life insurance, as the name suggests, lasts the whole of your life. It has various forms such as universal life insurance and permanent life insurance. In essence, no matter how many years have passed or what age you’re at, your death triggers a payout for your beneficiaries.
Since no one lives forever, the payout from a whole life insurance policy is guaranteed. As a result, its premiums are significantly higher than the premiums for term life insurance.
You may choose a whole life insurance policy as a young parent if you have a child that likely has to depend on you financially for the rest of their life. This may be the result of a disability or other need. A whole life insurance policy guarantees that no matter when you pass away, a death benefit will be there to protect your family.
This policy can also ensure coverage for funeral expenses or help pay for estate taxes.
Joint life insurance
Married or common-law partners may opt for joint life insurance. This type of policy allows you to reduce the cost of premiums by either combining you and your partner’s policies into one, or sharing the administrative costs related to two policies. Joint policies commonly come in one of three forms:
Joint first-to-die life insurance
Joint first-to-die policies cover both you and your partner under one policy with a single term, coverage amount, and premium. The policy pays out and terminates when one of you dies.
If the surviving partner continues to want life insurance coverage, they must get reinsured, which includes a new medical check and a higher premium. If the death occurs later in the surviving partner’s life, finding a new life insurance policy may be much more expensive.
Joint last-to-die life insurance
Joint last-to-die policies is similar to a joint first-to-die policy, but the coverage amount is only paid once you and your partner both pass away. The term, coverage amount, and premiums are the same for both partners during their life. This policy provides a death benefit for your remaining children once you and your partner are no longer here. It can also help pay remaining debts and tax obligations.
A joint last-to-die policy doesn’t, however, provide any benefits when the first partner passes away. This creates issues as the loss of one partner can mean reduced household income, an expensive funeral bill, and additional childcare and home care costs.
Combined life insurance
Combined policies consist of two individual life insurance policies from the same insurer. Because both policies are from the same provider, you save some money due to lower administrative costs.
A combined life insurance policy can compensate for the shortfalls of a joint first-to-die or last-to-die policy while still providing a lower premium. However, the prior two joint policies remain more affordable because there’s only one death benefit. In contrast, two individual policies provide two death benefits.
While a joint first-to-die or last-to-die policy should be considered by new or young parents who need a more affordable premium, combining individual insurance policies is more advantageous for parents if possible.
Who should parents choose as beneficiaries?
A beneficiary is the recipient of your life insurance’s death benefit. There can be one beneficiary or multiple. If you don’t name a beneficiary, the policy’s payout goes to your estate upon your death.
It’s common to choose your partner as your beneficiary. This leaves them funds to arrange your funeral, pay off remaining debts, and purchase necessities for your family.
Leaving the money to your children is also common, specifically for single parents. However, most Canadian provinces disallow children under the age of 18 to control the money from a death benefit. As a result, it may be appropriate to create a trust for the payout.
Read more about how to create a trust in Canada.
With a trust, the trustee can distribute the money to your children as necessities arise and then in full when they reach adulthood. It’s best to speak to a financial planner or lawyer to understand the intricacies of a trust.
You can also leave the life insurance payout to your spouse and children as co-beneficiaries.
A proper life insurance policy that fits your circumstance is crucial to planning your family’s financial security. Reach out to one of our expert advisors below to discuss your insurance needs and find what policy may be right for you. You’ll also receive no-obligation quotes for life insurance for parents or any coverage you’re seeking.
The information above is intended for informational purposes only and is based on PolicyAdvisor’s own views, which are subject to change without notice. This content is not intended and should not be construed to constitute financial or legal advice. PolicyAdvisor accepts no responsibility for the outcome of people choosing to act on the information contained on this website. PolicyAdvisor makes every effort to include updated, accurate information. The above content may not include all terms, conditions, limitations, exclusions, termination, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details. In case of any discrepancy, the language in the actual policy documents will prevail. All rights reserved.
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- The most common options for new and young parents are term life, whole life, or joint life insurance policies.
- Insurance riders are useful in a policy because they can increase your coverage and protect your family
- The recipient of your life insurance death benefit, known as a beneficiary, can be one or multiple people.
- Joint policies can save on premiums, but keep in mind they share one death benefit (as opposed to two for individual insurance policies)