Term life for new parents: what to do in the first year

A new baby fills the calendar, and life insurance is the kind of task that slides to "next month" until a scare puts it back at the top. This post puts the work in order. It follows a hypothetical couple through the twelve months around a birth, with each task, the reason for it, and what to expect. The point is not to rush: nothing here needs to happen in one week. The point is that by the baby's first birthday, coverage is in force, the money has somewhere safe to go, and the people who would raise the child are named.

The household we will follow

Jordan and Sam are both 33. Jordan earns $65,000 a year as an employee and has group life insurance through work equal to two times salary. Sam earns $52,000. They own a home with a $210,000 mortgage, have $60,000 in savings, and are expecting their first child. None of this is a recommendation, and the numbers are round figures chosen for easy arithmetic.

You will have a different household. The sequence is what carries over.

Before the birth: months minus three to zero

Get quotes while you are healthy and not sleep-deprived

The cheapest time to buy term life is usually before life gets complicated. Premiums depend on age and health at application, and a level term policy holds that price for its term. If you are pregnant or your partner is, you can generally still apply, and the guide on getting life insurance while pregnant describes how insurers treat it. Spend an evening collecting quotes for the amount and term you will compute below, from several sources.

Why now: the application includes a health interview and often an exam, and arranging that is easier with a free week than with a newborn.

Find out what work already provides

Look up the group life benefit each of you has. It is often one or two times salary, it typically ends when employment ends, and it may not be portable. See keeping group life insurance when you leave a job for what happens if you leave. Treat it as a first layer, not the plan.

Why now: the amount you need from individual policies is the total need minus what you already have.

Size the need

A method that works for most families is to add up the years of support, the debts, the future costs and the final expenses, then subtract what you already have. The longer treatment is in income replacement: the 10x rule and better ways and How much life insurance do I need?. For Jordan and Sam, a worked example for Jordan's coverage, with invented figures:

The gap rounds to about $1,000,000. Sam's coverage is computed the same way, and because a parent's unpaid work has a cost, the gap for the lower earner is rarely small; see life insurance for stay-at-home parents if one of you will be home. The point of the table is the structure, which you can reproduce on one sheet of paper. The How much life insurance do I need? automates the same arithmetic.

Sam's side of the worksheet

The lower earner's coverage is computed the same way, and the result is often closer to the higher earner's than people expect. Say that if Sam died, the household would lose $52,000 of income but also save some of what Sam spends on himself, and the surviving parent would have to pay for more childcare. Suppose the shortfall is $36,000 a year, and the couple is keeping the same mortgage and education goals.

• Income support: $36,000 times 18 years is $648,000.
• Mortgage payoff, education and final expenses are shared with Jordan's worksheet; to avoid counting them twice, the couple decides each policy covers its own half of the mortgage and education: half of $210,000 is $105,000, half of $80,000 is $40,000, and a final expense amount of $15,000.
• Total need: $648,000 plus $105,000 plus $40,000 plus $15,000 is $808,000.
• Less their share of savings, $30,000, and group coverage for Sam, assumed here as $52,000 (one times salary): $808,000 minus $82,000 is $726,000.

Sam's gap is about $725,000. The two worksheets use slightly different assumptions about the shared items, and that is fine, as long as the couple knows what each assumes. If one parent stays home, the shortfall is the cost of replacing the unpaid work, and the number can be as large as for a paid job.

The first week: hospital-time paperwork

Do the paperwork that cannot wait

In the first days there are forms that matter more than insurance: the birth registration, the Social Security number application for the baby (often offered at the hospital), and adding the baby to a health plan. Many health plans give a short special-enrollment window after a birth, commonly about 30 days, but the window and its rules depend on the plan, so ask the benefits office.

Why now: these deadlines are real, and missing them is more expensive than a late life insurance application.

Check your group life enrollment options

A birth is often a qualifying event for benefits changes. Ask whether you can raise your group life amount without a health review, or add dependent coverage. The exact rules depend on the plan.

Why now: if the window is limited to a period after the event, it closes.

Do not start the life insurance application from the hospital bed

It is fine to talk to an agent, and fine to skip it. The application can wait two weeks. Rest is not wasted time.

Weeks two to eight: apply

Choose the term length

A level term life insurance policy should last until the child is independent and your savings can stand on their own. For a newborn, that is usually 20 to 25 years or more. The guide on life insurance for new parents explains the usual choices, and the How long a term do I need? helps. If a mortgage runs 30 years, some parents choose a longer term or a ladder of terms, as explained in laddering term life policies to match your needs.

Why now: the premium is based on your age at application, so each year of delay costs a little, and the risk of a health change grows.

Apply for each parent

Apply for both of you, and answer every question accurately. The guide on the life insurance application process and timeline describes the usual stages: the application, a medical exam or data check, underwriting, an offer and delivery. Plan on a few weeks, and sometimes longer. If a medical exam is needed, arrange it for a time that suits a new-parent schedule.

Ask about temporary insurance while your application is pending if the application will take time and you want coverage while it is pending; it has conditions, so read them.

Why now: the weeks after a birth are when the need is greatest and your calendar is most unpredictable.

Months three to six: approval, delivery and beneficiaries

Review the offer, then accept

Compare the offer with the quote. If the rate class is lower than expected, ask why, and consider asking another insurer. Do not cancel any existing coverage until the new policy is in force.

Name the beneficiaries with the child in mind

The beneficiary form is the most consequential page in the process. If you name your spouse as primary and your child as contingent, the child would receive money outright if both parents died, and insurers will not pay a large sum to a minor directly; a court may appoint a conservator. See naming a minor child as life insurance beneficiary. Many parents name a trust or a custodian under the Uniform Transfers to Minors Act, described in the glossary entry on a UTMA custodian, with a named adult in charge. The trade-offs between those options are in the blog post naming beneficiaries on term life when your children are minors, and an attorney can set up a trust.

Why now: a policy with the wrong beneficiary, or none, can send money to the wrong place or into court.

Use the free-look period

After delivery, check the policy against your application. If anything is wrong, the free-look period lets you return the policy for a refund. Its length varies by state and policy.

Months six to nine: guardian and will

Choose a guardian

Choosing who would raise your child if both parents died is the hardest decision in this list, and it is a separate decision from who receives the money. Talk to the people you are considering before you name them. Pick a successor as well. A court makes the final appointment, but it gives weight to the parents' choice in the will. The blog post naming a guardian: how the will, the trust and the policy fit together shows how the guardian, the will and the policy fit.

Write the will

A will names the guardian, directs assets, and can create a trust for a child. It does not control life insurance, which passes by the beneficiary form, so the two must agree; see life insurance and your will. If your finances are simple, an online service or an attorney can draft a will. If you own a home, have significant assets or want a trust, an attorney is the safer choice.

Why now: by month six or so, the sleepless fog is lifting, and the task is within reach.

Tell the people involved

Tell the guardian, the trustee and the beneficiary where the documents are, and put a copy of each policy with your important papers. A policy no one can find helps no one.

Months nine to twelve: review

Check the whole picture

At about nine months, put the pieces side by side on one page. A simple checklist works.

1. Each parent has a level term policy in force, sized from the worksheet above.
2. Beneficiary forms name a spouse as primary and a trust or custodian arrangement for the child as contingent.
3. A will names a guardian and a successor.
4. Work benefits are in place and any beneficiary designation there matches.
5. Someone outside the household knows where everything is.

At the first birthday

Treat the first birthday as a review date. Reopen the worksheet. Has income changed? Have you bought a house or taken on debt? If you plan another child, will the amounts still fit, or do you want to add coverage while you are healthy? Add a calendar reminder to look again each year, or at each major event.

Snags that come up in the first year

Few plans run smoothly. Some of the frequent bumps, and ways to handle them:

• The offer comes back in a lower class. An exam result or a prescription history can move a rate class. Ask the agent what caused it, and ask whether a second insurer would see it differently.
• One parent is postponed or declined. Insurers sometimes postpone applicants after a recent surgery or complication. Ask when you can reapply, keep the other parent's application moving, and look at what employer coverage provides in the meantime. The guide on postponed application: why insurers make you wait describes the process.
• Money is tight. Parenting costs rise fast. A smaller policy bought now locks in an age and health rating; a second policy can be added later. Do not stretch to a premium you cannot pay for twenty years, because a lapsed policy protects no one.
• The paperwork stalls. The application, exam and underwriting can take weeks. Check in by phone at intervals, and respond to document requests the same day.
• You change jobs. If your coverage was through work, you may lose it. Individual term does not depend on your employer.
• Family disagreements about the guardian. Decide for yourselves, put it in the will, and tell the people involved. A court has the final word, but a clear written choice carries weight.

What it might cost, and how to think about it

Premium depends on age, health, amount and term, and any number written here would be misleading. Use quotes. A way to judge them: take the annual premium for both parents and compare it with the monthly cost of the child's own expenses, such as daycare. If you are in your early thirties and healthy, the premium for a large policy is commonly a small share of what the family spends on the child in a year. Compare real quotes before you decide, and do not buy more than the worksheet supports.

If cost is the constraint, a smaller policy now is better than none, and a ladder of terms can lower the price. The guide on life insurance for new parents covers the trade-offs, and the child term rider is an add-on some insurers offer, though a policy on each parent is the usual priority.

Key takeaways

• Order the work: size the need before the birth, apply in the first two months, name beneficiaries and a guardian in months three to nine, and review at the first birthday.
• Subtract savings and group life from the total need to find the gap, and fill it with level term on each parent.
• Do not cancel existing coverage until the new policy is in force, and use the free-look period to check the delivered contract.
• Name beneficiaries with the child in mind: a minor cannot receive a large payout directly, so consider a trust or a custodian and make the will agree.
• Review the plan at each birthday and at every major life change.