The birth of a child is one of the most important moments in any parent’s life. The excitement and joy of your baby’s arrival are almost always immediately followed by feelings of concern and anxiety. Their vulnerability highlights your own. You realize that if something happens to you or your partner, your child could be left unprotected, without the resources they need. This is the time to make important decisions, and purchasing a life insurance policy is one of them. With it, you will secure your child’s future if something happens to you or your partner.
In this article we will talk about the best options for using life insurance as a tool to protect your newborn. If you are expecting, or just had a baby, read below to find out about the best options for life insurance available to you.
Life Insurance and Newborns: Article Contents
If you’ve recently had a child, or are about to have one, you surely will experience the mixed feelings all parents have. The joy and hope of becoming a parent are almost always accompanied by feelings of fear and uneasiness. What if something happens to us and our baby is suddenly left alone? How will my partner and child move forward without my salary? All parents, both new and not so new, are tormented by these types of thoughts. In fact, these types of concerns are the main reasons people give for purchasing life insurance: they want to have coverage that will protect their children in the event that something happens to one or both of their parents.
Life insurance is one of the few ways to guarantee that your baby will have sufficient resources to maintain a certain standard of living and be able to finish their studies if anything happens to you or your partner. This is especially important if you are the breadwinner in your family. Don’t wait any longer to purchase a life insurance plan. It’s the only way to have the peace of mind of knowing that your family will be able to move on without your income.
But for some young parents, who might have limited resources, the arrival of a child represents more expenses, and as such, added financial pressure. This is why many parents decide not to purchase life insurance, when actually there are plans out there that are fairly affordable.
If money is an issue, the easiest type of plan to obtain is a term or temporary life insurance policy. This option will allow you to have life insurance for a specific term: 5, 10, 15, or 20 years, for example. During this period, if you pass away, your family will receive the death benefit. If you don’t, when the term expires, you can renew or abandon it.
These temporary policies offer some important advantages: they are easy to obtain because the underwriting process is very simple, and in addition, since the risks assumed by the insurance company are low, the premiums you will pay for them are very affordable. In addition, you can always negotiate the conversion of the temporary policy into a permanent one.
On the other hand, if you can pay a little more each month, it is most likely in your best interest to purchase permanent life insurance. These types of policies never expire and remain in effect during the entire life of the insured. When they pass away, a guaranteed death benefit will be paid to the beneficiaries they have named.
In addition, these types of polices also have one or more savings accounts associated with them. These are used to invest part of the money you pay in premiums, which over the long-term, becomes what is known as cash value. This is money that you can withdraw or borrow. The ability to accumulate savings is one of the most attractive benefits of permanent life insurance.
If you decide to purchase one of these types of plans, you should be aware that there are four basic types, which are differentiated by the level of risk you assume when investing the money from the premiums. These range from the most conservative, traditional or conventional life insurance, to the riskiest, variable life insurance, with universal life, and variable universal somewhere in the middle. All of these are good options for ensuring your family can move forward if they lose you.
Another step many new parents take is purchasing a life insurance plan for their child. Although this is something none of us want to think about, as no parent wants anything to happen to their child, tragedies do occur, and it’s best to be prepared. Insuring the life of a child who just recently was born can make the thought of losing them easier, especially for parents with less income who must cover funeral costs when faced with the tragedy of losing a child, or the possible expenses of taking a leave from work until they can recover from the loss.
These are some of the reasons that you might want to consider purchasing life insurance for children. There are special plans for newborns that have lower coverages, which when they are of legal age, converts into normal coverage. You should know that there are many advantages to purchasing a policy. The most important are:
Affordability. Insurance companies assign a very low risk to babies. Their life expectancy is very long and the day they will have to hand over a payout is very far away. This is why the premiums are very low. They fact that the coverages are also low helps to contribute to making them more affordable.
Guaranteed eligibility. Your baby doesn't know this, but when they are older and want to purchase an insurance plan, they will have to go through a complicated underwriting process and might not be accepted. If you insure your child during the first days of their life, you guarantee they will always be eligible, because the insurance company will simply update the policy as the child grows up, but won’t require them to purchase a new one.
Savings component. If you purchase a permanent policy for your child, you will be giving them the additional gift of a savings account. The cash value with grow with them, and they can use it in the future to pay for college, start a business or take a big trip. The longer this cash value accumulates, the more money will be available to them, which is a big advantage to starting so young. In addition, some insurance policies for children are specifically designed to allow children to take out loans against the cash value. The idea is that they will have help to cover the cost of university.
It’s also likely that you already have an existing policy you are paying for, whether it’s a term, permanent, or even group life insurance policy. In these cases, you can extend the coverage to include the baby.
There are various ways of doing this, but the easiest is to add a children’s rider to the policy. If your policy doesn’t have this, you should negotiate with the insurance company to include it, which will most likely raise your monthly premium. Including additional clauses in life insurance policies generally increases their cost, but it is a good option in cases like this.
Insurance companies allow you to activate these clauses or riders from the time the child is two weeks old, and you can include them on your policy until they reach up to 25 years of age.
Again, this option has several advantages:
No qualification. The baby is insured directly and won’t have to go through any underwriting process to obtain coverage.
More affordable. Adding a clause to a parent’s policy is always cheaper than purchasing a separate policy for the child.
Conversion into a permanent policy. Some insurance companies offer children’s riders that, over time, you can convert into permanent policies independent from their parents’ policies.
There is no doubt that no one is more concerned about your children’s future than you are, and a life insurance policy can help to give you some peace of mind. If you have a newborn or are expecting an addition to your family, don’t hesitate to learn about the benefits of having an insurance policy for babies to protect their future. Talk to an insurance agent today and find out what option is best for you.